Is CVS Stock A Better Pick Over UNH Stock?

Core Viewpoint - Health insurance companies, particularly CVS Health and UnitedHealth Group, are facing scrutiny due to proposed legislation that may force them to divest their pharmacy businesses, alongside rising medical costs impacting profitability [1][13]. Group 1: Company Performance - CVS Health's revenue grew from $269 billion in 2020 to$358 billion in 2023, averaging an annual growth rate of 10% [3]. - UnitedHealth's revenue increased from $256 billion to$368 billion during the same period, with a higher average growth rate of 13% [3]. - CVS's healthcare benefits segment saw a significant 40% revenue increase from 2020 to 2023, driven by a rise in total medical membership from 23.4 million to 27.1 million [4]. - UnitedHealth's OptumHealth business experienced a 67% revenue growth from 2020 to 2023, contributing to overall company growth [5]. Group 2: Profitability and Margins - CVS's operating margin decreased from 5.2% in 2020 to 4.1% in 2023, while UnitedHealth's margin fell from 8.2% to 7.7% during the same period [7]. - In the last twelve months, UnitedHealth's operating margin was 7.0%, significantly better than CVS's 2.9% [7]. - Both companies are experiencing rising medical costs, with CVS's medical benefits ratio increasing to 91.7% in September 2024 from 80.9% in 2020 [7]. Group 3: Financial Position - UnitedHealth has a more favorable financial position, with a debt-to-equity ratio of 17% compared to CVS's 141% [9]. - UnitedHealth also has a higher cash position, with 12% cash as a percentage of assets versus 4% for CVS [9]. Group 4: Stock Performance and Valuation - CVS stock has declined by 15% from $60 in January 2021 to around$50, while UnitedHealth stock increased by approximately 60% from $330 to$520 during the same period [10]. - CVS is currently trading at 7.3x trailing adjusted earnings of $6.36 per share, which is lower than its average P/E ratio of 9.8x over the last three years [12]. - UnitedHealth is trading at 18.4x trailing adjusted earnings of$27.02 per share, compared to its average P/E ratio of 23.1x [12]. - CVS Health's valuation is estimated at $66 per share, indicating nearly a 40$606 per share, reflecting over 20% upside [13].