CS Equity Research UNH Nov2017

2 November 2017
Americas/United States
Equity Research
Managed Care
UnitedHealth Group Inc. (UNH)

Rating OUTPERFORM
Price (01-Nov-17, US$) 209.53 INITIATION
Target price (US$) 233.00
52-week price range (US$)
Market cap(US$ m)
212.60 - 137.71
202,586
Core Holding on Secular Growth of Health Care
Target price is for 12 months.
Research Analysts
■ We Are Initiating Coverage of UnitedHealth Group (UNH) with an
A.J. Rice
Outperform Rating and a $233 Target Price: With almost $200 bln in revs,
UNH is a Dow component stock that represents a compelling way to play the
secular growth associated with health care. UNH targets attractive LT EPS
Jailendra Singh growth of 13-16%. In 2017, UNH is poised to grow EPS 24% Y/Y, exceeding
its LT target. For 2018, despite a headwind associated with the reinstatement
Caleb Harris, CPA
of the health insurer fee, UNH management says consensus EPS estimates,
which imply adjusted Y/Y growth of 16% (ex HIF), appear reasonable.
■ Strong Prospects for UHC (UNH’s Health Insurance Segment): UNH’s
health benefits franchise (UHC) is positioned to capture share and grow
earnings. UHC’s relationship with Optum enables it to manage medical costs
effectively, which enhances the competitiveness of its offerings. As a market
share leader in every product segment in which it competes, UHC’s scale
allows it to leverage G&A costs, which given MLR caps has become the
primary way for health insurers to drive margin gains. In Medicare Advantage
(MA; roughly 25% of earnings), UNH continues to outperform market
enrollment growth while maintaining its LT MA target margin of 3-5%.
■ Optum (44% of total earnings) Represents a High-Margin, High-Growth
Service Business: Optum appears set for another year of robust growth in
2018, with earnings expected to grow mid-teens to high teens Y/Y. Optum’s
three key business segments—OptumRx (a PBM), Optum Health (the health
care provider/service business), and Optum Insight (the IT services and data
analytics segment)—are all set to post strong revenue and earnings growth.
■ Valuation: UNH currently trades at 19.3x and 16.6x our 2018 and 2019 EPS
estimates, respectively. Based on our SOTP analysis, we use a blended
target multiple of roughly 18.5x, yielding a target price of $233. Risks to our
rating and price target include an unexpected pick-up in utilization, and an
unexpected slowdown in trends at Optum and in MA business.
Share price performance Financial and valuation metrics
230 Year 12/16A 12/17E 12/18E 12/19E
210 EPS (CS adj.) (US$) 8.05 10.00 10.85 12.60
190 Prev. EPS (US$) - - - -
170 P/E (x) 26.0 21.0 19.3 16.6
150 P/E rel. (%) 118.3 105.0 108.1 102.4
130 Revenue (US$ m) 184,828.0 200,440.4 215,458.5 228,993.8
Jan - 1 7 Apr- 17 Ju l - 1 7 O ct - 1 7 OCFPS (US$) 10.12 16.67 15.23 16.88
P/OCF (x) 15.8 12.6 13.8 12.4
UN H .N S& P 5 0 0 IN D EX
ROIC (%) 12.64 16.45 18.41 21.76
On 01-Nov-2017 the S&P 500 INDEX closed at 2581.0 Number of shares (m) 966.86 Dividend yield (%) 0.36
Daily Nov01, 2016 - Nov01, 2017, 11/01/16 = US$139.43 Source: Company data, Thomson Reuters, Credit Suisse estimates
Quarterly EPS Q1 Q2 Q3 Q4
2016A 1.81 1.96 2.17 2.11
2017E 2.37 2.46 2.66 2.50
2018E 2.47 2.59 2.85 2.94
DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST
CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit
Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware
that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report
as only a single factor in making their investment decision.
2 November 2017

Price (01 Nov 2017): US$209.53; Rating: OUTPERFORM; Target Price: US$233.00; Analyst: A.J. Rice
Income Statement 12/16A 12/17E 12/18E 12/19E Company Background
Revenue (US$ m) 184,828.0 200,440.4 215,458.5 228,993.8 Headquartered in Minnetonka, MN, UnitedHealth is a diversified
PBT (US$) 12,213 13,921 16,176 18,923 health and well-being company, operating across four business
Income taxes (4,920) (4,411) (5,823) (7,001) segments: UnitedHealthcare, OptumHealth, OptumInsight, and
Profit after tax 7,293 9,509 10,353 11,921 OptumRx. UnitedHealth Group Inc. was incorporated in 1977.
Minorities (56) (245) (325) (341)
Reported net income (US$) 7,237 9,264 10,028 11,581 Blue/Grey Sky Scenario
Other NPAT adjustments 0 0 0 0
Adjusted net income 7,237 9,264 10,028 11,581
Cash Flow 12/16A 12/17E 12/18E 12/19E
Cash flow from operations 9,795 16,402 14,911 16,269
CAPEX (1,705) (1,714) (2,358) (2,506)
Free cashflow to the firm 8,090 14,688 12,553 13,763
Cash flow from investments (9,355) (7,092) (2,358) (2,506)
Net share issue(/repurchase) (851) (22) (4,047) (4,353)
Dividends paid (2,261) (2,829) (2,936) (2,891)
Cashflow from financing activities (1,887) 2,087 (6,983) (7,243)
Changes in Net Cash/Debt (1,369) 11,396 5,570 6,520
Balance Sheet (US$) 12/16A 12/17E 12/18E 12/19E
Assets
Cash & cash equivalents 10,430 17,633 21,203 25,723
Account receivables 8,152 8,228 8,843 9,396
Other current assets 15,297 16,311 17,071 17,755
Total current assets 33,879 42,173 47,117 52,874
Total fixed assets 5,901 6,366 6,384 6,530
Investment securities 23,868 27,703 27,703 27,703
Total assets 122,810 140,318 145,280 151,183
Liabilities
Total current liabilities 49,252 50,857 54,004 56,902
Total liabilities 82,621 88,777 90,695 92,261
Shareholder equity 38,274 47,608 50,653 54,990
Total liabilities and equity 122,810 140,318 145,280 151,183 Our Blue Sky Scenario (US$) 245.00
Our blue sky valuation of $245 assumes UNH continues to benefit
Per share 12/16A 12/17E 12/18E 12/19E
from the favorable medical cost trends, capture share gains in
No. of shares (wtd avg) 968 984 979 964 Medicare Advantage market, and incremental growth opportunities
CS adj. EPS 8.05 10.00 10.85 12.60
at Optum, which would drive 5-10% earnings upside to our
Prev. EPS (US$)
expectations.
Dividend (US$) 2.38 2.88 3.00 3.00
Free cash flow per share 8.36 14.92 12.83 14.28
Earnings 12/16A 12/17E 12/18E 12/19E Our Grey Sky Scenario (US$) 192.00
Sales growth (%) 17.6 8.4 7.5 6.3 Our grey sky valuation of $192 incorporates deterioration in
Net profit growth (%) 24.5 28.0 8.2 15.5 Medicare Advantage enrollment and margins and an increase in
EPS growth (%) 24.9 24.1 8.6 16.1 health care utilization, along with any regulatory changes that result
Pretax margin (%) 6.6 6.9 7.5 8.3 in adverse effects on the PBM industry business model.
Net margin (%) 3.9 4.6 4.7 5.1
Share price performance
Valuation 12/16A 12/17E 12/18E 12/19E
P/E (x) 26.0 21.0 19.3 16.6
Price to book (x) 5.0 4.4 4.1 3.7 230
Asset turnover 1.5 1.4 1.5 1.5 210
Returns 12/16A 12/17E 12/18E 12/19E 190
ROE stated-return on (%) 18.5 21.0 20.5 22.0
ROIC (%) 12.6 16.4 18.4 21.8 170
Gearing 12/16A 12/17E 12/18E 12/19E 150
Total Debt to Capital (%) 45.1 35.8 32.9 29.6 130
Interest coverage ratio (X) 12.4 12.9 15.3 18.1 Jan - 1 7 Apr- 1 7 Ju l - 1 7 O ct - 1 7
Quarterly EPS Q1 Q2 Q3 Q4
2016A 1.81 1.96 2.17 2.11
2017E 2.37 2.46 2.66 2.50 UN H .N S& P 5 0 0 IN D EX
2018E 2.47 2.59 2.85 2.94
On 01-Nov-2017 the S&P 500 INDEX closed at 2581.0
Daily Nov01, 2016 - Nov01, 2017, 11/01/16 = US$139.43
Source: Company data, Thomson Reuters, Credit Suisse estimates
UnitedHealth Group Inc. (UNH) 2

2 November 2017
Table of Contents
Key Charts 4
Executive Summary 5
Investment Positives 6
UNH Is a Play on the Secular Growth in Health Care..............................................6
Long-Term Growth Targets Highly Attractive Relative to Other Dow Component
Stocks ......................................................................................................................6
Market Strength and Business Momentum at UHC .................................................7
Well Positioned to Outpace Industry Growth in MA .................................................7
Strong Medicaid Franchise ....................................................................................10
Optum – A Compelling Growth Engine ..................................................................10
OptumHealth – Riding the Growth Opportunities in Optum Care, One of the
Largest Healthcare Providers in the Country 12
OptumInsight – A High-Margin Business with Strong Growth Drivers 14
OptumRx – An In-House PBM Gaining Traction on External Growth 15
Essentially No Exposure to the Uncertainty Related to Public Exchanges ............17
Strong Management Team with the Deepest Bench in the Industry......................17
An Active Capital Deployment Strategy Facilitated by a Strong Balance Sheet ....17
Investment Risks 19
Exposure to Medicare Advantage Risk Coding Controversies ..............................19
The PBM Segment Has Headline Risk ..................................................................19
International Segment Results Have Been Volatile ...............................................19
An Unexpected Rise in Medical Costs Could Result in Earnings Volatility ............20
Price Performance and Valuation 21

Valuation Analysis..................................................................................................21
Sum-of-the-Parts Analysis .....................................................................................23
Credit Suisse PEERS 25

2 November 2017
Key Charts
Figure 1: UnitedHealthcare's Enrollment Breakdown (2017E)
International
8% Commercial Risk
17%
Medicaid
13%
MedSupp
9%
Medicare
Advantage
Commercial Fee-
9%
based
44%
Source: Company data, Credit Suisse estimates.
Figure 2: UnitedHealthcare Employer & Individual Business Enrollment

Breakdown* (2016)
Individual
5%
Small Group
12%
National Accounts
40%
Public Sector
13%
Local Markets
30%
*National Accounts: Large, multi-location employers and other benefits sponsors with more than 3,000 employees; Public Sector:
Municipalities, educational institutions and labor unions with more than 3,000 employees; Local markets: mid-sized and large employers with
100-3,000 employees, as well as larger employers with service needs confined to a single state; Small Business: local businesses employing
two to 99 individuals; Individual: includes 2016 public exchange enrollment of an estimated 720K.

2 November 2017
Executive Summary
We are initiating coverage of UnitedHealth Group (UNH) with an Outperform rating and a
$233 target price.
With almost $200 bln in annual revenue, UNH has a broad and diverse product offering
that makes it a compelling way to play health care’s long-term secular growth. For a Dow
component stock with a market cap around $200 billion, UNH has very attractive long-term
(LT) growth targets (annual revenue growth of 6-9% and EPS growth of 13-16%). For
2017, UNH is on track to grow its adjusted EPS 24%, well ahead of its LT target. In our
view, for 2018, despite the Health Insurer Fee (HIF) headwind, UNH can deliver EPS
in-line with consensus estimates, which would imply Y/Y EPS (excluding $0.75/share of
HIF headwind) growth of 16%.
We believe that UNH enters 2018 with strong momentum across all segments and is well
positioned to once again produce organic share gains in both the Commercial and
Medicare health insurance markets. While Optum is recognized as a high-growth vehicle,
UNH’s health benefits franchise is also uniquely positioned to capture market share and
grow membership and earnings over the next several years. UNH's health benefits
business experienced challenges in 2013 in both Commercial and Medicare, but
management stabilized the platform in 2014 and has been building operational momentum
ever since, with the notable exception of UNHs inability (along with others) to make money
on public exchanges. For 2017, the company is on track to report its best enrollment gains
in recent years in Medicare Advantage (MA) and in the Commercial Group risk business.
The return of the HIF is an industry issue for 2018. UNH has said more than half of its
$0.75/share of HIF earnings headwind in 2018 is related to its Medicare business, while
the remainder is related to timing in the Commercial business. In Medicare Advantage,
UNH’s has tried to keep benefits stable as the HIF comes back. The company believes its
competitive advantages stem from its scale and its close alignment with the Optum
services business, which enables UHC to enjoy high retention and favorable word-of-
mouth from seniors and brokers in local markets. Overall, we expect the company to
continue to outperform the market on MA growth and continue to take market share while
meeting or exceeding its long-term margin target of 3-5% on this business.
Beyond the bright prospects for UnitedHealthcare, Optum appears set for another year of
robust growth in 2018, with all three of its primary segments well placed to generate strong
revenue and earnings growth. On its own, Optum is now one of the largest and
fastest-growing health care companies in the country, with no signs of demand slowdown
in any of its businesses. In fact, going forward, Optum sees an addressable market that it
sizes at $1 trillion in annual revenue. We estimate that Optum will account for close to
44% of the total company’s pretax earnings (48.5% of post-tax earnings) in 2019.
Finally, UNH generates significant cash flow that it routinely uses to fund acquisitions that
enhance its competitive position, particularly with respect to Optum. In recent years, major
acquisitions have included the purchases of Catamaran, a publicly traded PBM, and
Surgical Care Affiliates, a publicly traded operator of ambulatory surgery centers. UNH
has also used its cash flow to fund share repurchases and growing dividends. After taking
up leverage to fund acquisitions, UNH returned to its LT D/C ratio target of “Below 40%”
one quarter ahead of schedule. We believe UNH is well placed to return to a more
normalized annual share buyback run-rate of “at least” $4.0 bln, while taking advantage of
any inorganic opportunities.
UNH currently trades at 19.3x and 16.6x our 2018 and 2019 EPS estimates, respectively.
We use a sum-of-the-parts analysis to value UNH. Based on comparable companies, we
estimate Optum should trade at roughly 20x our 2019 EPS estimate, while the UHC
business should trade at 17x our 2019 EPS estimate. This leads to a blended target
multiple of roughly 18.5x, yielding a target price of $233.
2 November 2017
Investment Positives
UNH Is a Play on the Secular Growth in Health Care
With almost $200 bln in annual revenue, UNH has a broad and diverse product offering
that makes it a compelling way to play health care’s long-term secular growth. We believe
the breadth of product offering and scale positions UNH to take advantage of opportunities
wherever they emerge. In fact, through UHC and Optum, UNH processed more than $1.5
trillion in gross billed charges and managed more than $200 bln in aggregate health care
spending in 2016. In the U.S., UnitedHealthcare (UHC) arranges for access to care
through networks that include more than a million physicians and other health care
professionals and approximately 6K hospitals and other facilities. UHC currently serves
almost 50 mln enrollees. Separately, Optum serves 115 mln individuals, four out of every
five hospitals, a network of more than 67K pharmacies, more than 100K physicians,
practices, and other health care facilities, approximately 300 health plans and government
agencies in 34 states and Washington, D.C.
Long-Term Growth Targets Highly Attractive Relative

to Other Dow Component Stocks
UNH is the only health insurance company included in the Dow Jones Index. For a Dow
component stock with expected 2017 projected annual revenues around $200 billion and a
market cap close to $200 billion, UNH has committed to attractive long-term growth targets
(with long-term annual revenue growth of 6-9% and EPS growth of 13-16%). In fact, for
2017, UNH is on track to grow its adjusted EPS at 24%, well ahead of its LT EPS growth
target. Based on current consensus estimates, only six companies in the DJIA are
expected to grow faster than UNH. UNH shares at the current price offer this attractive
growth at compelling valuations. When compared across the other companies included in
the DJIA, UNH’s valuations are in-line with the median valuation of the 30 companies
(roughly 16.2x 2019 estimate). However, when taking into consideration the EPS CAGR,
UNH ranks 9th among the 30 companies in the index (ranked first among all the health
care stocks included in DJIA). UNH’s PEG of 1.3x is almost a 1.2x discount to the median
PEG for all 30 companies and a 1.6x discount to the other health care stocks in the index.
Figure 3: UNH's PEG vs. DJIA vs. Other HC Stocks in DJIA
2.9#
2.5#
1.3#
UNH DJIA Other HC Stocks in DJIA

Source: Thomson Reuters.

2 November 2017
Market Strength and Business Momentum at UHC

UNH’s health benefits franchise is well positioned to capture market share and grow
earnings over the next several years. We expect process management gains for UNH
across the board and further improvements in member experiences as measured by the
Net Promoter Score (NPS) to continue to drive strong performance. UHC’s close
alignment with Optum, UNH’s services segment, has enabled it to drive an attractive
medical cost trend, which in turn has enabled it to attract, retain, and grow its health
insurance customer base.
UNH’s health benefits business experienced challenges in 2013 in both Commercial and
Medicare, but management stabilized the platform in 2014 and has been building
operational momentum since. By enrollment, UNH is currently the leader in the
commercial risk and Medicare Advantage businesses, ranked second (or close to second)
in commercial ASO, Medicaid, and Medicare Part D. As a market share leader in every
product segment in which it competes, UNH has scale that enables the company to
leverage G&A costs, which given MLR caps has become the primary way to drive margins
forward. In fact, UNH has previously noted that its Medicare platform has grown to a level
at which it can add one mln new members onto its platform without any noticeable service
disruption and get significant operating leverage since the company doesn't have to add
much more to the fixed cost base to onboard these members.
In MA, the company is already tracking ahead of its initial guidance for both Individual MA
as well as Group MA. In the commercial fully insured segment, UNH’s ex-ACA compliant
business has outperformed the company’s initial expectations (driven by its strong value
proposition, breadth of its product portfolio, and a new approach to its distribution
community). UNH has also talked about sales momentum in its National Accounts
markets. While some of the company’s peers have seen attrition in this market, UNH is on
track to post the third consecutive year in terms of membership additions in this business.
Finally, in Medicaid, with nearly 30 years of experience serving state partners through the
administration of large scale Medicaid and other state programs, UNH has gained a
unique standing in the industry. In 2016 and 2017 combined, the company implemented
ten new contracts, including procurements.
Well Positioned to Outpace Industry Growth in MA

With almost 10-11K baby boomers turning 65 every day and the increasing penetration of
Medicare Advantage among Medicare beneficiaries, Medicare Advantage is currently one
of the fastest-growing health insurance markets in the country. Seniors turning 65 today
are very comfortable using managed care plans for their health insurance coverage, and
MA enrollment is projected, therefore, to continue to grow at high-single-digit enrollment
growth. (CMS expects a 9% enrollment growth in 2018.) From a purely economic
perspective, UNH has noted in the past that MA could represent a more favorable value
proposition for up to 70% of all Medicare beneficiaries. In fact, according to UNH, MA
currently offers roughly $100 of extra value per month, including ancillary benefits and
lower cost-sharing for copays and deductibles.
As noted, UNH is the market share leader in the Medicare Advantage business, with
roughly 24.2% market share, well ahead of the second ranked MA player, Humana, at
roughly 16.5% market share. UNH has also benefitted from its long-standing relationship
with AARP. The company continues to market AARP Medicare Supplement, AARP
MedicareRx, and AARP MedicareComplete plans under those names, taking advantage of
the AARP brand. By way of background, AARP is the nation’s largest consumer
organization, serving nearly 38 million Americans over age 50, and maintains one of the
most recognized and trusted brands in the senior market.

2 November 2017
Figure 4: Medicare Advantage Market Share
UNH HUM
24% 17%
Kaiser
8%
AET
7%
ANTM
Other CI 3%
34% CNC WCG 2%
1% 2%
Source: CMS. *chart may not add up to 100% due to rounding
Over the past year or so, UNH has also been bullish on the prospects of Group MA. At its
2016 Investor Day, UNH noted that approximately 25% of the total Medicare market, about
15 mln retirees, is covered by group plans. As the market grows, plan sponsors are under
increasing pressure to address retiree health care and are seeking robust, cost-effective
and stable benefits packages that meet the unique needs of their retirees. Plan sponsors
usually have three options: they can keep wrap plans that are secondary to Medicare,
which include Medicare Supplement + Part D plans; they can move retirees to an
exchange; or they can move retirees into Group MA. UNH believes that Group MA
represents the best value proposition for groups committed to maintaining retiree
coverage. The Group MA market has close to 4 mln retirees, with potential to double over
the next five years. With strong commercial National Account relationships, UHC is
working with employer customers to provide Medicare solutions for their retirees. UHC is
the market leader in Group MA and maintains a robust pipeline of opportunities for growth
through acquisition of new clients and expansion with existing clients. The company
expects the strength in its Group MA business to continue in 2018.
With respect to the MA enrollment trends in 2017, UNH is already tracking ahead of the
company’s initial guidance for individual MA and Group MA. Specifically, based on the
most recent data from CMS, UNH’s Individual MA enrollment is up 501K versus the
company’s full-year initial growth outlook of up 379-454K lives. Likewise, UNH’s Group MA
enrollment is up 365K lives YTD, versus the company’s full-year initial growth outlook of
up 321-346K lives. UNH’s MA business saw close to 97% retention rate for the 2017 OEP
(15 percentage points higher than the industry average). The UNH’s MA retention rate was
up 200-300 bps Y/Y and was the highest achieved in its history. As highlighted in Figure 5,
UNH’s MA enrollment has more than doubled since 2010.

2 November 2017
Figure 5: UNH's MA Enrollment Trends (in mlns)
4.43
3.63
3.24
2.99 3.01
2.57
2.07 2.24
2010 2011 2012 2013 2014 2015 2016 2017E
Finally, UNH has significantly improved its MA STAR ratings in recent years. Based on the
most recent MA STAR data from CMS, roughly 85% of UNH’s members are in 4 or higher
Star rated plans, which would allow UNH to offer consistent and stable benefits relative to
the marketplace in 2019 as well. This compares with only 21% for the 2016 payment year.
Figure 6: UNH STAR Ratings Trend (as a % of Enrollment in 4 or 4+ STARs)

84% 85%
65%
22% 21%
8%
4%
2013 2014 2015 2016 2017 2018 2019
Source: Company data, Credit Suisse estimates, CMS.
The return of Health Insurer Fee (HIF) is an industry issue for 2018, primarily in the Medicare
business. UNH has called out that more than half of its $0.75/share of HIF headwind in 2018
is related to the Medicare business, while the remainder is related to the timing issue in the
Commercial business. In Medicare Advantage, UNH’s efforts have been to keep benefits as
stable as possible in a world where insurers will pay the fee. The company believes its
competitive advantages stem from the overall value UNH offers that are providing for high
retention and favorable word-of-mouth from seniors and brokers in local markets. The
company expects to once again outpace the industry growth in MA in 2018.
We expect the company to continue to outperform the market on MA growth and continue
to take market share, while meeting or exceeding its long-term margin target of 3-5% on
this business.

2 November 2017
Strong Medicaid Franchise

Over the past 15 years, states have increasingly turned to managed care delivery systems
from Medicaid fee-for-service as a way to reduce Medicaid costs (Managed Medicaid
penetration increased from 56% in 2000 to 75% today). Managed Medicaid programs
enable states to contract with one or more entities for patient enrollment, care
management, and claims adjudication and are estimated to generate 10%-20% in savings
for states. With state budgets under pressure and Medicaid accounting for roughly 17% of
state general funds, the second largest budget item, we expect state governors to
increasingly look to move Medicaid FFS enrollment over to Medicaid Managed Care.
Additionally, while three-quarters of the people served by Medicaid are in managed care
today, that represents only 40% of total spending (more than $600 bln in 2017), as states
have historically been slower to convert programs serving people with complex needs from
fee-for-service to managed care.
We believe UNH’s comprehensive offerings along with its strong relationships with state
governments position the company well for future business opportunities. UNH has
developed one of the industry's premier Medicaid franchises that has been equally
successful in driving above-average relative growth and profitability. Along with Centene
and Anthem, we view UNH’s Medicaid business as one of the three most effective in
consistently winning competitive procurements and converting the state-sponsored RFP
pipeline into actual revenue. Specifically, in 2016, UNH implemented five new contracts,
including procurements, with net growth of 400K members. In 2017, UNH rolled out five
additional contracts, including Sacramento and San Diego counties in California, a rebid
and geographic expansion of the company’s business in Nebraska, a new state contract in
Missouri, a re-procurement in Nevada, and MLTSS contract in Virginia. The company also
entered into agreements to acquire membership of Maricopa Integrated Health System in
Arizona and Rocky Mountain Health Plans in Colorado.
UHC is also being recognized as a differentiated provider for those people with the
most complex conditions (DSNPS, LTSS, etc.). UNH was the only new entrant
recently added in Virginia to serve the LTSS population. Further expanding its reach,
UNH had recently begun serving the IDD (intellectually and developmentally disabled)
populations in three states.
Optum – A Compelling Growth Engine

In 2011, United launched its One Optum strategy, with the goal of unifying its fast-growing
but disparate health services businesses under the single Optum brand. In 2011, Optum
generated $28.6 billion in revenue and $1.3 billion in operating earnings, already making it
at the time a very significant health care services player. Since then, all of the three major
Optum franchises (OptumRx, OptumHealth, and OptumInsight) have generally produced
double-digit top-line growth. As a result, by the end of this year, Optum should reach more
than $90 billion in revenue and close to $6.6 billion in earnings. During the 2011-2017E
period, Optum is expected to produce revenue CAGR of 21% and earnings CAGR of 32%.

2 November 2017
Figure 7: Optum's Revenue Trends ($ in blns) Figure 8: Optum's Earnings Trends $ in blns)
$6.6
$5.6
$91
% $84
f 21 32
%
G Ro Ro
f $4.3
CA $68 CA
G
$3.3
$48 $2.3
$37 $1.4
$1.3
$29 $29
2011 2012 2013 2014 2015 2016 2017E 2011 2012 2013 2014 2015 2016 2017E
Source: Company data, Credit Suisse estimates. Source: Company data, Credit Suisse estimates.
We estimate Optum to represent roughly 44% of UNH’s operating earnings in 2017,

compared with 14.9% in 2011.
Figure 9: Earnings Split Between UHC & Optum
61% 58% 56%

74% 68%
85% 83%
39% 42% 44%

26% 32%
15% 17%
2011 2012 2013 2014 2015 2016 2017E

Optum UHC
UHC has noted recently that the ways to positively leverage the Optum offerings are still
emerging and evolving. For example, UHC uses Optum to facilitate the increasing use of
providers that demonstrate the combination of high-quality services at below-average
costs. UHC is also reportedly benefiting from Optum's growing capabilities in the area of
population care models. These programs are designed to make sure all is being done to
support and provide care management for the 5% of the typical plan sponsor book that is
responsible for 54% of costs.
UNH has emphasized recently that UHC's strong enrollment growth in recent periods has
in part been driven by leveraging Optum capabilities. Taking full advantage of all Optum
capabilities, from pharmacy services to clinical offerings, has reportedly been a driver of
growth that has benefited the insurance operation. The use of Net Promoter Scores (NPS)
has also been a factor in the on-going improved performance of Optum Health. In key
segments such as HouseCalls, physician practices, and MedExpress, high NPS has led to
high retention rates for UHC. Optum also deploys an elite sales team that focuses on
establishing larger deeper and more comprehensive relationships, such as with Northwell
Health System on Long island. Optum currently has 17 of these multi-year,
multi-billion-dollar relationships.
2 November 2017
The year 2017, in particular, has been good for Optum in terms of both organic and
inorganic opportunities. Recently, New Jersey switched its PBM contract from ESRX to
OptumRx for the State Health Benefits Plan and School Employees’ Health Benefits Plan.
The state health plans are on track to spend around $2.3 bln on prescription drugs in
2017. Earlier this year, OptumRx had a strong start with a high profile win with HTA (a
group of 38 major employers). OptumCare also won a $221 mln five-year contract with
DoD for Global Nurse Advice Line Services. In February of this year, the Massachusetts
Medicaid program (MassHealth) signed a three-year contract valued at $58.5 mln with
Optum Government Solutions to support its management and oversight of fee-for-service
long-term services and supports (LTSS) programs. As the third-party administrator (TPA),
Optum will support care for about 300,000 beneficiaries who receive state plan LTSS from
more than 2,100 health care provider organizations. With respect to M&A, OptumHealth
acquired Surgical Care Affiliates in 1Q17 and has been reportedly in discussions to
acquire Reliant Medical Group. Finally, UNH recently announced an agreement to acquire
the health care business of The Advisory Board Company.
One untapped and emerging opportunity for UHC to leverage Optum is in the commercial
marketplace. The payment rates to providers have the greatest variance in the commercial
market. For example, the payment rates for the same service provided at an
out-of-network emergency room (as much as $3,300 per visit) to an in-network emergency
room to a MedExpress ($200 per visit) can vary more than tenfold. By better leveraging
Optum's capabilities, UNH can make sure that its members are receiving appropriate care
in the lowest cost setting.
Optum sees an addressable market that it sizes at $1 trillion in annual revenue. Five key
client areas of focus remain: (1) government services, federal, state, military (VA and
DOD); (2) the continued rollout and expansion of Optum Care;
(3) Pharmacy Care Services—which Optum sees including the PBM but also going
beyond the traditional focus of a PBM; (4) Technology Services—designed to support
providers and health plans; and (5) International—Optum continues to focus on
opportunities to work with the NHS in the U.K., having signed its first Strategic
Transformation Plans (STP) contracts in January and February and continuing to discuss
options with respect to the national health data program.
OptumHealth – Riding the Growth Opportunities in Optum Care, One of
the Largest Healthcare Providers in the Country
OptumHealth is a diversified health and wellness business serving the physical, emotional,
and health-related financial needs of millions of individuals, both directly to patients
through OptumCare’s care delivery system and through Optum’s Consumer Solutions
programs that enable population health management for employers, payers, and
government entities.
OptumCare is a physician-led, patient-centric, and data-driven business that creates value
by delivering and facilitating care across the full continuum through high-performing
networks comprised of partnered physicians, advanced practitioners, and other care
providers. Through MedExpress, a rapidly growing urgent care network, OptumCare fills
gaps in the continuum of care and helps insure that patients have access to low-cost
primary care when it convenient and needed. MedExpress neighborhood care centers
provide urgent and walk-in care services with a consumer-friendly approach. Additionally,
through the care services business, OptumCare addresses complex medical conditions by
supporting care delivered in institutional, home, and community settings. OptumCare’s
HouseCalls program provides in-home assessments in order to engage individuals,
understand their health status and needs, and close care gaps. Logistics Health (LHI),
which is also part of OptumCare, delivers occupational health and medical services to
government customers, with a particular focus on the military.

2 November 2017
OptumCare integrated care delivery strategy is a key driver of future value creation across
the organization. UNH has highlighted in the past that primary care is at the nucleus of
UNH's value-based care strategy; the 2015 acquisition of MedExpress and the Surgical
Care Affiliates (SCA) deal earlier this year both fully align with that strategy.
Optum Care has 23,000 physicians, MedExpress urgent care clinics, Surgical Care Affiliates,
and HouseCalls, which currently does 1.3 mln visits to patients in their homes annually.
Separately, MedExpress is approaching 200 urgent care centers and management expects
to continue to expand rapidly, having highlighted a goal of reaching 250+ centers by the end
of 2018. MedExpress obtains a 70 NPS which puts it above Amazon and Apple. The
average cost of a visit to a MedExpress is less than $150 (roughly 10% of the cost of an
emergency room visit). Despite the cost differential, MedExpress can provide 70% of the
care that is offered in the typical ER setting. Finally, MedExpress offers convenience in that a
patient is met by a receptionist within ten minutes of arriving at a facility, and the average
time from arrival to completion of service is less than an hour. The breadth of services is
wide enough to substantially differentiate a MedExpress center from a CVS Minute Clinic or
a Walgreens Take Care unit. Management has previously highlighted that a low-single-digit
percentage of MedExpress patients are referred on to acute care hospitals, while the vast
majority of patients are sent home.
OptumCare is now operating in 26 markets and the target is to grow this footprint to 75
strategic markets, which the company sizes at roughly a trillion dollars in annual revenue.
OptumCare has the goal of eventually touching and impacting 60-70% of the U.S.
population. One-third of OptumCare's target markets are physician dominated, such as Las
Vegas and Southern California; one-third are hospital dominated, and in which OptumCare
will lead with Optum360 and with other data tools and analytics. The remaining third of the
overall target market is said to represent a combination of a physician and hospital-led
market. Optum Health currently has all of its major capabilities present in 23 of the targeted
75 markets. MedExpress sites are in more than 55 total markets today (10 of which it is the
only offering Optum offers), while SCA locations take Optum Health into 17 new markets.
Following the SCAI acquisition, UNH has been pushing to incorporate the 5,000 SCAI-
affiliated physicians into the Optum Health capabilities and infrastructure. SCAI is also
looking at opportunities to partner with existing Optum Care physician groups and already
has seven surgery center partnerships with Monarch, Optum Care's large physician practice
multi-specialty group in Southern California.
Additionally, OptumCare continues to encounter considerable interest from physicians who
want to maximize their STAR ratings or HEDIS scores (quality metrics) and see the
company as having capabilities that can help them achieve their goals. The company
believes many physician groups will see SCA and MedExpress as potential partners that will
allow them to compete more effectively. OptumCare now contracts with over 40 major health
plan partners (and over 80 plans overall) and "focuses significantly on the consumer and
their experience". Around 28% of UHC's MA members are now in full-risk sharing models,
and around half of those arrangements are delivered through OptumCare networks.
Conversely, around half of OptumCare's MA patient base is covered through UHC MA plans.
Management has noted in past that OptumCare's ROIC has improved from 6% in 2014 to
roughly 10% today. Over time, the company expects its ROIC to approach the low-teens.
OptumHealth also owns the Optum Consumer Solutions business, which helps consumers
address their physical, emotional, and financial needs through a range of offerings that
include wellness, care management, behavioral health, network and health financial
solutions. Optum Consumer Solutions’ offerings are organized into two broad groups:
population health management services, which offers an integrated and complete health
care experience to consumers regardless of their health plan sponsor; and Optum
Financial Services, which offers products that enable saving and paying for current and
future health care expenses. The company currently manages about 4.0-4.5 mln accounts
with $8 bln under management.

2 November 2017
OptumHealth’s revenues are expected to increase from $6.7 bln in 2011 to $20.4 bln in
2017, a CAGR of 20.4%, and earnings are expected to increase from $423 mln in 2011 to
$1.8 bln in 2017, a CAGR of 27.3%. OptumHealth’s LT revenue growth outlook is “at least”
10-15% and operating margin outlook at 8-10%.
Figure 10: OptumHealth – Revenue and Margin Trend (2011-2017E), $ in blns
$20.4
$16.9
$13.9
$11.0
$9.9
$8.1
$6.7 9.6% 9.9%
8.9% 8.4% 8.8%
6.3% 6.6%
2011 2012 2013 2014 2015 2016 2017E

Revenue Margin
OptumInsight – A High-Margin Business with Strong Growth Drivers

OptumInsight is one of the most diversified participants in the health technology and
managed services markets. OptumInsight delivers value through health care analytics
and expertise fueled by one of the most comprehensive health data sets in the industry,
scaled health system administrative infrastructure, and key relationships across the
health care system. OptumInsight currently works with more than 300 health plans, four
out of every five hospitals, more than 100 customers each from government, and global
life sciences organizations.
OptumInsight also offers a unique combination of acute and ambulatory revenue
management solutions through Optum360° and Optum Physician Services as a means for
the company to get the foot in the door with many providers. Optum360° provides leading
revenue management technology, analytics, and services to organizations like Dignity
Health, Northwell Health, and Quest Diagnostics. Additionally, Optum’s government services
bring deep commercial experience to federal, state, and local governments, enabling them to
better serve their citizens through greater cost efficiencies and a higher degree of quality.
These services span the health and human services spectrum, from systems integration, IT
infrastructure and data analytics, through care management and delivery.
The data analytics capability of Optum Insight is said by the company to be an increasing
source of differentiation. The unit currently has full medical records information relating to
94 mln patient lives that it maintains in Optum One. Furthermore, the company has basic
claims data on as many as 180 mln individuals.
In 3Q17, OptumInsight received a multi-year contract to serve the Triple-S Blue Cross
Blue Shield Puerto Rico health plan, managing its administrative and operational
infrastructure. OptumInsight’s contract revenue backlog, a key indicator of future growth,
grew to $13.9 billion as of September 30, 2017, an increase of 10.3% Y/Y. The company
believes that the pipeline of new business opportunities for OptumInsight remains robust
across key end-markets, including health plans, care providers, life sciences companies
and governments. In fact, the company expects to end 2017 with a backlog of $15-16 bln
for OptumInsight. The sequential growth expected to be driven by ambulatory and acute
revenue cycle management projects, for which the company’s pipeline is up 60% Y/Y.
2 November 2017
Figure 11: OptumInsight Contract Revenue Backlog Trends ($ in blns)
$13.9
$12.6
$10.4
$8.6
$7.2
$4.6
$4.0
2011 2012 2013 2014 2015 2016 3Q17
OptumInsight’s revenues are expected to increase from $2.7 bln in 2011 to $8.1 bln in
2017, a CAGR of 20.3%, and earnings are expected to increase from $0.4 bln in 2011 to
$1.7 bln in 2017, a CAGR of 28.6%. OptumInsight’s LT revenue growth outlook is 10-15%,
and its operating margin outlook is 16-20%.
Figure 12: OptumInsight – Revenue and Margin Trend (2011-2017E), $ in blns

$8.1
$7.3
$6.2
$5.2
$4.7 21.2%
$4.3 20.6% 20.6%
19.2%
$2.7 17.6%
15.4%
14.3%
2011 2012 2013 2014 2015 2016 2017E

Revenue Margin
OptumRx – An In-House PBM Gaining Traction on External Growth

OptumRx is the third largest PBM in the country and one of the largest providers of
pharmacy care services in the United States, managing more than $80 billion in prescription
drug spend annually. OptumRx primarily differentiates through its synchronized model, a
collaborative and innovative approach leveraging the best assets and capabilities of
OptumRx, OptumHealth, OptumInsight, and health benefit plan sponsors to positively impact
health care outcomes and the total cost of health care. Synchronization integrates OptumRx
pharmacy data, services, systems ,and processes with Optum’s comprehensive claims data
and broad array of clinical programs and other benefits to proactively engage individuals in
more timely and relevant ways. OptumRx’s differentiated model applies core capabilities
around data, technology and patient engagement to impact total cost of care, not just
pharmacy cost. While traditional PBM models use only pharmacy claims data in an attempt
to manage care, OptumRx acts on multiple data sources, such as inpatient and outpatient
2 November 2017
admissions, lab results, and other medical and claims data to improve health outcomes and
reduce total health care costs. The company believes that through the synchronization
process, OptumRx can generate $11-16 Per Member Per Month (PMPM) savings for
members, which the company passes back to its customers.
OptumRx also provides extensive retail network contracting, purchasing and clinical
capabilities. In recent years, in partnership with some of the largest retail pharmacy chains
in the United States, OptumRx has developed a number of strong consumer choice
platforms. OptumRx expects annually adjusted scripts at 1.25-1.28 bln in 2017. The
company expects to grow its adjusted scripts volume above the industry growth rate in
2018, primarily driven by high 90% retention rates, new commercial and health plan wins,
and growth in its health plan customers.
UNH has noted in past that OptumRx members have substantial interaction with
caregivers involved in the supply of pharmacy services. The company believes that these
interactions can be enhanced to make sure that other gaps in medical care for at risk
populations are addressed. The three key focus areas UNH has highlighted for OptumRx
include driving more value, looking at consumer experience, and looking at selling
opportunities. Driving more value is seen in OptumRx's focus on achieving a lower net
cost of drugs and of total health care spending. In focusing on the consumer experience,
the company is committed to providing differentiated services at retail, home delivery, and
other experiences. (The focus on NPS has gotten the company more focused on getting
the communication with consumers right.) To enhance the customer experience, OptumRx
also rolled out Script Connect, which is designed to help physicians and consumers better
understand what is on formulary and what is not.
OptumRx is scheduled to rollout the high profile, HealthCare Transformation Alliance
(HTA) contract, on January 1, 2018. The HTA represents 38 employers of which six were
historically served by OptumRx (OptumRx and CVS were named the preferred PBMs for
the group earlier this year). Over the past year or so, OptumRx also had some other major
wins such as GE, CalPERS, and Texas Employee Retirement System.
OptumRx now possesses the scale and capabilities to offer good value and competitive
pricing in both the wholesale and retail segments to employer and health plan clients.
OptumRx’s revenues are expected to increase from $19.3 bln in 2011 to $63.3 bln in
2017, a CAGR of 21.9%, and earnings are expected to increase from $0.5 bln in 2011 to
$3.1 bln in 2017, a CAGR of 37.3%. OptumRx’s LT revenue growth outlook is 5-8% and
operating margin outlook is 3-5%.
Figure 13: OptumRx – Revenue and Margin Trend (2011-2017E), $ in blns

$63.3
$60.4
$48.3
$32.0
$24.0
$19.3 $18.4 4.4% 4.8%
3.7% 3.6%
3.0%
2.4% 2.0%
2011 2012 2013 2014 2015 2016 2017E

Revenue Margin

2 November 2017
Essentially No Exposure to the Uncertainty Related

to Public Exchanges
UNH made a prudent decision to hold back from moving actively into the public exchange
market in 2014 (participating very selectively in only five states) due to concerns around
the initial risk mix of the exchange population during the first open enrollment period.
However, the company moved more aggressively into the exchange market in 2015
(participating on public exchanges in 25 states) and enrolled 540K public exchange
members. For 2016, the company further stepped up to participate in 34 states and
enrolled 680K public exchange members at the end of the year. After adjusting for the
Premium Deficiency Reserve (PDR) in both the periods, UNH lost $475 mln and $850 mln
on public exchanges in 2015 and 2016, respectively. As a result, UNH reduced its public
exchange participation dramatically to just three individual public exchanges. The
company’s exposure to this volatile market is now significantly reduced, and the company
is essentially shielded from any uncertainty related to the future of public exchanges.
Strong Management Team with the Deepest Bench in

the Industry
We believe UnitedHealth Group has the strongest management team with the deepest
bench in our coverage. David Wichmann, 54, CEO of UNH, succeeded Steve Hemsley on
September 1, 2017. Mr. Hemsley became executive chairman at UNH, a newly created
position in which Mr. Hemsley, 65, who was the company’s CEO from 2006 to 2017,
remains actively involved in supporting the senior management team, oversight of
planning and performance and helping guide the enterprise. The CEO transition is
expected to be really smooth as UNH has been methodically preparing for this CEO
transition for a number of years, and the fact that Mr. Hemsley remains heavily engaged in
the company's strategy for years to come as executive chairman is a huge plus. Further,
Mr. Wichmann takes on the CEO role with immense organizational knowledge. During his
nearly 20-year tenure with UNH, he has cycled through nearly every key leadership role at
UNH including president, CFO, and CEO of UHC. He has overseen operations,
technology, corporate development, and M&A and integration efforts. Mr. Wichmann will
also be able to leverage the deepest management bench in the industry as CEO of UNH.
Among the other key leaders at the organization, Larry Renfro, 63, vice chairman, UNH,
has been with the company since January 2009. John Rex, 55, executive VP and CFO of
UNH, has been with the firm since 2012. Even the executive leaders at UHC and Optum
individually are highly experienced and have been with the company for several years.
UNH’s strong, deep management team is a result of its enterprise talent strategy, which
includes a balance of pursuing and recruiting the strongest executive talent from inside
and outside the health care industry, with its internal talent development strategy to
identify, develop and move talent across the organization. The company’s internal
development, succession planning, and mobility initiatives involve providing key domestic
and international experiences to its highest potential leaders with a goal of developing a
broad, diverse, global perspective over the course of their careers.
An Active Capital Deployment Strategy Facilitated by

a Strong Balance Sheet
UNH generated significant cash flow and has a history of being an opportunistic acquirer
while returning cash to shareholders in the form of both share repurchases and dividends.
UNH’s D/C ratio at the end of 3Q17 was 38.2% (down from just below 50% when UNH
acquired CTRX). The company hit its D/C ratio target one quarter ahead of schedule.

2 November 2017
As of 3Q17, UNH has generated $16.2 bln of operating cash flow, outpacing its Investor
Day outlook of generating $12 bln of operating cash flow. Given the company’s primary
focus of reducing its leverage, UNH’s share repurchases have been relatively modest in
recent years. However, with the company now at its long-term D/C ratio, we expect the
company to return to more normalized share buyback of “at least” $4.0 bln annually.
Figure 14: UNH's Share Buyback History ($ in blns)
$4.0
$3.1 $3.2
$3.0
$1.7
$1.2 $1.3
2011 2012 2013 2014 2015 2016 2017E
As highlighted Figure 15, UNH has also been an opportunistic acquirer in recent years.
Most recently, in late August, UNH announced that Optum would acquire the Advisory
Board (the Advisory Board Company’s healthcare business). The merger is expected to
close by the end of 2017 or in early 2018. The transaction is expected to be neutral to
UNH’s EPS in the first year. By way of background, Advisory Board is a best practices firm
that uses a combination of research, technology and consulting to improve the
performance of more than 4,400 health care organizations. Earlier this year, OptumCare
acquired Surgical Care Affiliates for about $2.3 bln in a cash and stock deal. Additionally,
Optum has been in discussions to acquire Reliant Medical Group, a non-profit physician
group in MA. UNH’s largest acquisition in recent years was the $12.8 bln acquisition of
Catamaran in 2015.
Figure 15: UNH's Acquisition Spending History ($ in blns)
$16.2
$6.3
$2.9
$1.5 $1.9 $1.8
$0.4
2011 2012 2013 2014 2015 2016 2017E*
Source: Company data, Credit Suisse estimates; *Excludes the Advisory Board’s HealthCare business, Includes $1.87 bln of stock issued for
Surgical care acquisition.

2 November 2017
Investment Risks
Exposure to Medicare Advantage Risk Coding
Controversies
In mid-May, the U.S. Justice Department sued UNH accusing the company of obtaining
over $1 billion from Medicare to which it was not entitled. The complaint, filed in federal
court in Los Angeles, came after the Justice Department brought a separate but similar
case against UNH. In both cases, the government intervened in whistleblower lawsuits
against the company. However, in early October, a federal judge rejected one of these two
whistleblower lawsuits. Several government agencies and organizations (including CMS)
have raised concerns about risk scoring over the years. In fact, in January 2016, even
UNH sued the CMS over a May 2014 rule detailing the requirement/penalties MCOs face
when they receive overpayments. UNH alleged the rule meant MCOs could be sued for
negligence under the False Claims Act, a lower standard than the recklessness standard
generally applied. In late March 2017, a federal judge in Washington, D.C., ruled that UNH
has standing to sue the CMS and can therefore move forward with the lawsuit. (The ruling
did not address the merits of the case.)
CMS, has several times, in the past, raised concerns that the perceived higher acuity of
the MA population is due, to some extent, purely to coding differences, resulting in MA
plans having higher payments than they deserve. Given UNH is the largest MA MCO in
the country and having almost 25% of earnings exposed to the business, any noise
around risk coding practices in Medicare Advantage could result volatility in UNH shares.
The PBM Segment Has Headline Risk

PBMs are seen as middlemen between drug makers and consumers when it comes to
purchasing drugs and providing prescription coverage. The PBM’s role is in part to
leverage its negotiating clout to get the best drug prices on behalf of its diverse base of
customers. However, the PBM’s role has come under scrutiny lately as high-priced drugs
bust employer and government budgets for prescriptions. Critics are questioning whether
PBMs operate in a transparent way and therefore don’t pass along all of the savings they
can to consumers. OptumRx being the third largest PBM in the country is also exposed to
these headline risks. However, OptumRx differentiates itself by operating as a pharmacy
care services company focused on connecting total condition spend and pharmacy’s
impact across benefits. The business primarily differentiates through its synchronized
model, a collaborative and innovative approach leveraging the best assets and capabilities
of OptumRx, OptumHealth, OptumInsight and health benefit plan sponsors to positively
impact health care outcomes and the total cost of health care.
International Segment Results Have Been Volatile

One future growth driver for UNH involves international expansion outside of the United
States. The two primary areas of focus: support for employers with international
workforces and support for individual nations' health care systems. So far, United's most
ambitious international expansion was its $4.9 billion acquisition of Amil in Brazil in 2012.
While the Brazilian market represents a large opportunity, the timing of United's entry into
Brazil was sub-optimal as it relates to the country's economic, valuation, and political
cycles. Since the acquisition, the trends in both the membership and revenues in the
international segment have been lumpy. The results have been relatively better in 2017,
with the company focused on pricing to cost. However, this has resulted in decline in the
segment’s membership.

2 November 2017
Figure 16: International Segment Ending Figure 17: International Segment Annual Revenue ($
Membership (in '000s) in blns)
$7.79
4,805
$6.93
$6.37 $6.21
$5.49
4,425
4,220
4,090
4,050
2013 2014 2015 2016 2017E 2013 2014 2015 2016 2017E
Source: Company data, Credit Suisse estimates. Source: Company data, Credit Suisse estimates.
An Unexpected Rise in Medical Costs Could Result

in Earnings Volatility
As is the case for other managed care companies, the profitability for UHC (the company’s
health insurance business) generally depends on its ability to predict, price for, and
effectively manage medical costs. MCOs generally manage medical costs through
underwriting criteria, product design, the negotiation of favorable provider contracts, and
care management programs. Commercial MCOs have to not only estimate the cost trends
for the next 12 months but also estimate what the trend has been over the past one to
three months. Separately, revenue on Medicare policies is based on bids submitted in
June of the year before the contract year. The Medicare managed care plans base their
premiums, and Medicare bids on their estimates of future medical costs over the fixed
contract period. As a result, any unexpected pick-up in medical costs (driven by factors
such as increased use of services, catastrophes, epidemics, the introduction of new or
costly treatments and technology, new mandated benefits, or insured population
characteristics, etc.) may cause actual costs to exceed what was estimated and reflected
in premiums or bids and can unfavorably impact earnings.
However, in recent years, UNH has experienced favorable medical cost trends relative to
the company’s original expectations. Heading into 2017, UNH expected its commercial
medical cost trend at up 5.5-6.5%. Along with 3Q17 earnings release, UNH updated its
outlook to the lower half of the initial outlook range.
Figure 18: 2017 Commercial Medical Cost Trends by Category

Initial Outlook for 2017 Comments
Physician 3.0-4.0% Moderate increase in utilization as UNH improves upon quality metrics
Inpatient 3.5-4.5% Further reduction in admits and bed days partially mitigates unit cost pressure
Outpatient 8.0-9.0% Continues to drive utilization trend; unit cost increases consistent with prior years
Pharmacy 6.5-7.5% Driven by unit cost from specialty pharmaceutical innovation
Source: Company reports.

2 November 2017
Price Performance and Valuation

UNH's share price is up 30.9% YTD thus far in 2017, after increasing 36.0% in 2016. UNH
has delivered positive returns over the past eight years and has outperformed the broad
market seven of the past nine years, including 2017 YTD.
Figure 19: UNH Historical Price Performance Relative to Peers and S&P 500
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 YTD
AET 33.7% -50.6% 11.2% -3.8% 38.3% 9.8% 48.1% 29.5% 21.7% 14.7% 38.5%
ANTM 11.5% -52.0% 38.4% -2.5% 16.5% -8.0% 51.7% 36.0% 11.0% 3.1% 45.7%
CI 22.5% -68.6% 109.3% 3.9% 14.6% 27.3% 63.6% 17.6% 42.2% -8.8% 48.3%
HUM 36.2% -50.5% 17.7% 24.7% 60.0% -21.7% 50.4% 39.1% 24.3% 14.3% 25.2%
Peer
26.0% -55.4% 44.2% 5.6% 32.4% 1.8% 53.5% 30.6% 24.8% 5.8% 39.5%
Avg.
UNH 8.3% -54.3% 14.6% 18.5% 40.3% 7.0% 38.8% 34.2% 16.4% 36.0% 30.9%
S&P
3.5% -38.5% 23.5% 12.8% -0.0% 13.4% 29.6% 11.4% -0.7% 9.5% 15.0%
500
Source: Thomson Reuters Datastream.
Note: Peer Avg includes AET, ANTM, CI, and HUM.
The primary valuation metric that we use to value UNH shares is forward P/E. Based on
Thomson Reuters consensus forward NTM EPS estimates, over the past ten years, UNH
shares have traded at an average P/E multiple of 12.8x, roughly a 1.3 turn premium to the
average forward multiple of roughly 11.5x for the major MCOs. Over the past five years, UNH
shares have traded at an average P/E multiple of roughly 15.5x, representing an approximate
1.5-turn premium to the average forward multiple of roughly 14.0x for the major MCOs.
UNH currently trades at 19.3x and 16.6x our 2018 and 2019 EPS estimates, respectively.
We use a SOTP analysis to value UNH shares. Our $233 target price is based on roughly
18.5x our 2019 EPS estimates.
Valuation Analysis
UNH shares currently trade at 19.8x NTM EPS estimate, or a 0.7x premium to the MCO
average of 19.1x.
Figure 20: UNH’s NTM Forward P/E compared to Managed Care Average*
25.0#
20.0#
15.0#
10.0#
5.0#
0.0#
7
7
-0
-0
-0
-1
-1
-1
-1
-1
-1
-1
-1
v
v
No
No
No
No
No
No
No
No
No
No
No
UNH Peer Avg
Source: Thomson Reuters Datastream *Managed Care Avg includes: AET, ANTM, CI, and HUM

2 November 2017
As highlighted Figure 21, the ten-year historical average for the valuation premium for
UNH versus the average for the major MCOs is roughly 1.3x ,while the five-year average
is 1.5x. The valuation differential between UNH and the rest of the major MCOs peaked in
early 2015 at a premium of 3.3x and troughed in mid-2008 at a discount of 1.6x.
Figure 21: Valuation Differential Between UNH and Managed Care Group Average*
4.0#
3.5#
3.0#
2.5#
2.0#
1.5#
1.0#
0.5#
0.0#
-0.5#
-1.0#
-1.5#
-2.0#
07
08
09
10
11
12
13
14
15
16
17
v-
v-
v-
v-
v-
v-
v-
v-
v-
v-
v-
No
No
No
No
No
No
No
No
No
No
No
Source: Thomson Reuters Datastream *Managed Care Avg includes: AET, ANTM, CI, and HUM
During the period of early 2013 to mid-2014, when UNH (similar to other MCOs) was
facing the challenges/uncertainties associated with Medicare Advantage rate cuts and
other ACA related changes, UNH’s premium to the group average was around 1.8x, on
average. As visibility around the MA reimbursement environment improved (including
UNH’s MA STAR ratings) in 2015 and Optum’s earnings contribution gradually increased
from 25% to 30%-plus, the premium for UNH shares increased to 3.5x by early 2015.
However, as 2015 progressed, the valuation premium eroded primarily due to the increase
in share prices for other major MCOs involved in deals and UNH’s challenges with the
public exchange business in late 2015.
In 2016, the valuation gap between UNH and the other four major MCOs once again
widened as there was increasing uncertainty over the regulatory process associated with
the attempted managed care deals. We see potential upside to the current premium of
1.3x, primarily driven by several other factors. UNH has de-risked its exposure to the
public exchanges. UNH’s OptumRx has also gained momentum in the marketplace with
notable contract wins over the past 12-18 months involving CalPERs, General Electric,
and the Employees Retirement System of Texas. Additionally, UNH has returned to more
active share repurchases. UNH repurchased $1.17 bln of shares in the first nine months of
2017 and, as of September 30, UNH had authorization to purchase up to an additional 43
mln shares. By way of background, UNH repurchased $1.3 bln, $1.2 bln, and $4.0 bln
worth of shares during 2016, 2015 and 2014, respectively. Finally, Optum, UNH’s services
business that deserves a premium valuation to the health benefits business because of its
high growth profile, now represents roughly 42.6% of UNH’s consolidated earnings (on
TTM basis), compared to 25.9% in 2013.

2 November 2017
Sum-of-the-Parts Analysis
With Optum now contributing almost 44% of UNH’s consolidated earnings, we believe a
sum-of-the-parts methodology in developing a price target P/E multiple for UNH is
warranted.
We estimate Optum to represent roughly 44% of UNH’s consolidated pretax earnings in
2019. However, on a net earnings basis, we estimate the earnings split at 49-51%, given
the impact of health insurer fees in the company’s UHC business. (We estimate the
effective tax rate for UHC at 42.1% and for Optum at 29.5% in 2019.)
Figure 22: 2019E Pre-tax Earnings Split Figure 23: 2019E Net Earnings Split
Optum
44% Optum
49%
UHC
UHC 51%
56%
Source: Credit Suisse estimates. Source: Credit Suisse estimates.
Our target Optum P/E multiple is based on our target multiple assumptions for the three
segments within Optum. We assume OptumHealth trades in a target range of 16-17x
(midpoint: 16.5x), a roughly 30% premium to comps (Davita Healthcare and Envision
Healthcare). We believe this premium is warranted given the strong organic and inorganic
opportunities for OptumHealth. For OptumInsight, we assume the business trades at 30x,
the high end of our target range of 25-30x. This target multiple would be a slight discount
to comps (Cerner, Inovalon, and MAXIMUS). We assume OptumRx trades in a target
range of 15-16x (midpoint: 15.5x), a significant premium to ESRX, the only stand-alone
PBM. Our higher premium for OptumRx is reflective of strong business momentum, while
ESRX shares reflect the overhang related to one of its major client losses in Anthem.

2 November 2017
Figure 24: Comps Analysis for Optum

Optum Earnings Split 2016A 2017E 2018E 2019E
OptumHealth 25% 27% 29% 30%
OptumInsight 27% 26% 26% 29%
OptumRx 48% 47% 45% 41%
Comparables
OptumHealth
DVA 16.7x 15.8x 14.4x
EVHC 8.9x 7.9x 7.1x
Average 12.8x 11.8x 10.8x
Target Multiple for OH 16.5x
% Premium/Discount for OH 40%
OptumInsight
CERN 27.7x 25.6x 23.2x
MMS 21.1x 20.4x 18.8x
INOV 53.1x 44.9x 42.4x
Average 33.9x 30.3x 28.1x
Target Multiple for OI 30.0x
% Premium/Discount for OI -1%
OptumRx
ESRX 8.7x 8.0x 7.2x
Target Multiple for ORx 15.5x
% Premium/Discount for ORx 93%
Blended Multiple 20.0x
Source: Credit Suisse estimates, Thomson Reuters Datastream.
With respect to UHC, we are using a target multiple of 17.0x our 2019 segment EPS
estimate. This is in-line with our long-term forward P/E target multiple range of 16-17x for
the group. This yields a blended price target multiple of 18.5x. Based on our 2019 EPS
estimate of $12.60, an 18.5x forward P/E multiple supports our target price of $233.
Figure 25: UNH’s Price Target Analysis

Price Target Analysis
2019 EPS Estimate $ 12.60
Optum EPS $6.14
UHC EPS $6.47
Target Multiple on Optum 20.0x

Target Multiple on UHC 17.0x
Implied PT $233
Blended PT Multiple 18.5x
Source: Credit Suisse estimates, Thomson Reuters Datastream
Our blue sky valuation of $245 is based on the assumption that UNH continues to benefit
from the favorable medical cost trends as well as capture share gains in Medicare
Advantage market and incremental growth opportunities at Optum, which would drive
5-10% earnings upside to our expectations. Our grey sky valuation of $192 incorporates
deterioration in Medicare Advantage enrollment and margins and an increase in health
care utilization, along with any regulatory changes that result in adverse effects on the
PBM industry business model.
2 November 2017
Credit Suisse PEERS

PEERs is a global database that captures unique information about companies within the
Credit Suisse coverage universe based on their relationships with other companies: their
customers, suppliers, and competitors. The database is built from our research analysts’
insight regarding these relationships. Credit Suisse covers over 3,000 companies globally.
These companies form the core of the PEERs database, but it also includes relationships
on stocks that are not under coverage.
Figure 26: UnitedHealth Group – Competitor and Supplier PEERs Map
Source: Credit Suisse PEERs.

Figure 27: UNH – Quarterly Income Statement

US$ in millions, except per share
1Q17A 1Q16A Y/Y Change 2Q17A 2Q16A Y/Y Change 3Q17A 3Q16A Y/Y Change 4Q17E 4Q16A Y/Y Change 2017E 2016A Y/Y Change
Revenue:
Premiums $38,938 $34,811 11.9% $39,585 $36,413 8.7% $39,552 $36,142 9.4% $40,028 $36,740 8.9% $158,103 $144,106 9.7%
Services 3,434 3,140 9.4% 3,797 3,269 16.2% 3,858 3,264 18.2% 4,107 3,563 15.3% 15,196 13,236 14.8%
Products 6,129 6,393 -4.1% 6,415 6,610 -3.0% 6,665 6,696 -0.5% 6,962 6,959 0.0% 26,171 26,658 -1.8%
Investment Income 222 183 21.3% 256 193 32.6% 247 191 29.3% 246 261 -5.8% 971 828 17.3%
Total Revenues 48,723 44,527 9.4% 50,053 46,485 7.7% 50,322 46,293 8.7% 51,342 47,523 8.0% 200,440 184,828 8.4%
Operating Costs:
Health Care Expenses 32,079 28,430 12.8% 32,549 29,872 9.0% 32,201 29,040 10.9% 32,796 29,696 10.4% 129,625 117,038 10.8%
Operating Costs (SG&A) 7,022 6,758 3.9% 7,328 6,793 7.9% 7,387 7,033 5.0% 7,753 7,455 4.0% 29,490 28,039 5.2%
Cost of Products Sold 5,676 5,877 -3.4% 5,889 6,106 -3.6% 6,068 6,125 -0.9% 6,349 6,308 0.7% 23,982 24,416 -1.8%
EBITDA 3,946 3,462 14.0% 4,287 3,714 15.4% 4,666 4,095 13.9% 4,444 4,064 9.4% 17,343 15,335 13.1%
Depr. & Amort. 533 502 6.2% 556 511 8.8% 578 515 12.2% 582 527 10.4% 2,249 2,055 9.4%
Income from Operations 3,413 2,960 15.3% 3,731 3,203 16.5% 4,088 3,580 14.2% 3,862 3,537 9.2% 15,094 13,280 13.7%
Interest Expense (283) (259) 9.3% (301) (271) 11.1% (294) (269) 9.3% (296) (268) 10.3% (1,174) (1,067) 10.0%
Income before Taxes 3,130 2,701 3,430 2,932 3,794 3,311 3,567 3,269 13,921 12,213
Income Tax Provision 939 1,074 -12.6% 1,080 1,172 -7.8% 1,233 1,333 -7.5% 1,159 1,341 -13.6% 4,411 4,920 -10.3%
Non-controlling Interest Expense 19 16 18.8% 66 6 1000.0% 76 10 660.0% 84 24 250.0% 245 56 337.5%
Net Income from Operations 2,172 1,611 34.8% 2,284 1,754 30.2% 2,485 1,968 26.3% 2,323 1,904 22.0% 9,264 7,237 28.0%
GAAP Net Income 2,172 1,611 34.8% 2,284 1,754 30.2% 2,485 1,968 26.3% 2,323 1,904 22.0% 9,264 7,237 28.0%
Fully diluted shares (mil) 975 967 0.8% 985 967 1.9% 989 969 2.1% 988 970 1.8% 984 968 1.6%
Earnings per Share

As Reported (GAAP) $2.23 $1.67 33.7% $2.32 $1.81 27.8% $2.51 $2.03 23.7% $2.35 $1.96 19.9% $9.41 $7.48 25.9%
From Operations $2.23 $1.67 33.7% $2.32 $1.81 27.8% $2.51 $2.03 23.7% $2.35 $1.96 19.9% $9.41 $7.48 25.9%
Non-cash Amortization Expense (est for prior to

$137 2015) -2.1%
$140 $139 $140 -0.7% $148 $139 6.7% $148 $139 6.7% $573 $558 2.6%
Cash EPS $2.37 $1.81 30.8% $2.46 $1.96 25.6% $2.66 $2.17 22.5% $2.50 $2.11 18.8% $10.00 $8.05 24.1%
Guidance Approaching $10
Dividends Paid $0.63 $0.50 25.0% $0.75 $0.63 20.0% $0.75 $0.63 20.0% $0.75 $0.63 20.0% $2.88 $2.38 21.1%
Margin Analysis
MLR 82.4% 81.7% 82.2% 82.0% 81.4% 80.3% 81.9% 80.8% 82.0% 81.2%
Operating Cost (as % of total revenue)
14.4% 15.2% 14.6% 14.6% 14.7% 15.2% 15.1% 15.7% 14.7% 15.2%
Cost of Products Sold (as % of Products
92.6% Revenue)
91.9% 91.8% 92.4% 91.0% 91.5% 91.2% 90.6% 91.6% 91.6%
D&A (as % of total revenue) 1.1% 1.1% 1.1% 1.1% 1.1% 1.1% 1.1% 1.1% 1.1% 1.1%
EBITDA margin 8.1% 7.8% 8.6% 8.0% 9.3% 8.8% 8.7% 8.6% 8.7% 8.3%
EBIT margin 7.0% 6.6% 7.5% 6.9% 8.1% 7.7% 7.5% 7.4% 7.5% 7.2%
Pre-tax Margin 6.4% 6.1% 6.9% 6.3% 7.5% 7.2% 6.9% 6.9% 6.9% 6.6%
Tax Rate 30.0% 39.8% 31.5% 40.0% 32.5% 40.3% 32.5% 41.0% 31.7% 40.3%
2 November 2017
Net Margin 4.5% 3.6% 4.6% 3.8% 4.9% 4.3% 4.5% 4.0% 4.6% 3.9%
Investment income as a % of TTM pre-tax
6.9% income
7.2% 7.1% 6.8% 7.0% 6.7% 7.0% 6.8% 7.0% 6.8%

26
2 November 2017
Figure 28: UNH – Annual Income Statement

2011 2012 2013 2014 2015 2016 2017E 2018E 2019E
Revenue:
Premiums $ 91,983 $ 99,728 $ 109,557 $ 115,302 $ 127,163 $ 144,106 $158,103 $170,551 $180,447
Services 6,613 7,437 8,997 10,151 11,922 13,236 15,196 15,991 18,113
Products 2,612 2,774 3,190 4,242 17,312 26,658 26,171 27,834 29,228
Investment Income 654 679 745 779 710 828 971 1,083 1,206
Guidance $700-750 mln
Total Revenues $ 101,862 $ 110,618 $ 122,489 $ 130,474 $ 157,107 $ 184,828 $200,440 $215,458 $228,994
Guidance $200 bln
Operating Costs:
Health Care Expenses 74,332 80,226 89,290 93,633 103,875 117,038 129,625 137,659 145,077
Operating Costs (SG&A) 15,557 17,306 19,362 21,263 24,312 28,039 29,490 32,731 34,869
Cost of Products Sold 2,385 2,523 2,839 3,826 16,206 24,416 23,982 25,421 26,660
EBITDA 9,588 10,563 10,998 11,752 12,714 15,335 17,343 19,648 22,389
Depr. & Amort. 1,124 1,309 1,375 1,478 1,693 2,055 2,249 2,340 2,360
Guidance $2.1-2.15 bln
Income from Operations 8,464 9,254 9,623 10,274 11,021 13,280 15,094 17,308 20,029
Interest Expense (505) (632) (708) (618) (790) (1,067) (1,174) (1,132) (1,106)
Income before Taxes 7,959 8,622 8,915 9,656 10,231 12,213 13,921 16,176 18,923
Income Tax Provision 2,817 3,096 3,242 4,037 4,363 4,920 4,411 5,823 7,001
Non-controlling Interest Expense - - 48 - 55 56 245 325 341
Net Income from Operations $5,142 $5,526 $5,625 $5,619 $5,813 7,237 $9,264 $10,028 $11,581
Guidance $9.05-$9.20 bln
Unusual Items - - - - - - - - -
GAAP Net Income 5,142 5,526 5,625 5,619 5,813 7,237 9,264 10,028 11,581
Fully diluted shares (mil) 1,087.8 1,046.3 1,023.3 985.5 967.3 968.3 984.1 978.8 963.5
Guidance 980 mln
Earnings per Share

As Reported (GAAP) $4.73 $5.28 $5.50 $5.70 $ 6.01 $ 7.48 $ 9.41 $ 10.25 $ 12.02
From Operations $4.73 $5.28 $5.50 $5.70 $ 6.01 $ 7.48 $ 9.41 $ 10.25 $ 12.02
Non-cash Amortization Expense (est for prior to 2015) $ 423 $ 558 $ 573 $ 593 $ 564
Cash EPS $ 6.45 $ 8.05 $ 10.00 $ 10.85 $ 12.60
Guidance Approaching $10
Dividends Paid $ 1.05 $ 1.41 $ 1.88 $ 2.38 $ 2.88 $ 3.00 $ 3.00
Margin Analysis
Medical Cost Expenses (as % of Premium) 80.8% 80.4% 81.5% 81.2% 81.7% 81.2% 82.0% 80.7% 80.4%
Guidance 82.0-83.0%
Operating Cost (as % of total revenue) 15.3% 15.6% 15.8% 16.3% 15.5% 15.2% 14.7% 15.2% 15.2%
Guidance 14.2-14.8%
Cost of Products Sold (as % of Products Revenue) 91.3% 91.0% 89.0% 90.2% 93.6% 91.6% 91.6% 91.3% 91.2%
D&A (as % of total revenue) 1.1% 1.2% 1.1% 1.1% 1.1% 1.1% 1.1% 1.1% 1.0%
EBITDA margin 9.4% 9.5% 9.0% 9.0% 8.1% 8.3% 8.7% 9.1% 9.8%
EBIT margin 8.3% 8.4% 7.9% 7.9% 7.0% 7.2% 7.5% 8.0% 8.7%
Guidance 7.1-7.5%
Pre-tax Margin 7.8% 7.8% 7.3% 7.4% 6.5% 6.6% 6.9% 7.5% 8.3%
Tax Rate 35.4% 35.9% 36.4% 41.8% 42.6% 40.3% 31.7% 36.0% 37.0%
Guidance 32.50%
Net Margin 5.0% 5.0% 4.6% 4.3% 3.7% 3.9% 4.6% 4.7% 5.1%
Guidance 4.2-4.4%
Investment income as a % of TTM pre-tax income 8.2% 7.9% 8.4% 8.1% 6.9% 6.8% 7.0% 6.7% 6.4%
Y/Y Growth
Total Revenue 8.2% 8.6% 10.7% 6.5% 20.4% 17.6% 8.4% 7.5% 6.3%
Total Operating Expenses 8.3% 8.5% 11.3% 6.5% 21.5% 17.4% 8.0% 6.9% 5.5%
EBITDA 7.4% 10.2% 4.1% 6.9% 8.2% 20.6% 13.1% 13.3% 13.9%
EBIT 6.7% 9.3% 4.0% 6.8% 7.3% 20.5% 13.7% 14.7% 15.7%
Net Income 10.8% 7.5% 1.8% -0.1% 3.5% 24.5% 28.0% 8.2% 15.5%
Diluted Adjusted EPS 15.2% 11.7% 4.1% 3.7% 5.4% 24.4% 25.9% 8.8% 17.3%
Diluted Adjusted Cash EPS 24.9% 24.1% 8.6% 16.1%

2 November 2017
Figure 29: UNH – Annual Balance Sheet

US$ in millions
2011 2012 2013 2014 2015 2016 2017E 2018E 2019E
Assets
Cash and cash equivalents $ 9,429 $ 8,406 $ 7,276 $ 7,495 $ 10,923 $ 10,430 $ 17,633 $ 21,203 $ 25,723
Short-term investments 2,577 3,031 1,937 1,741 1,988 2,845 3,388 3,388 3,388
Accounts receivable, net 2,294 2,709 3,052 4,252 6,523 8,152 8,228 8,843 9,396
Assets under management 2,708 2,773 2,757 2,962 2,998 3,105 2,750 2,750 2,750
Deferred income taxes 472 463 430 556 860 - - - -
Other current receivables, net 2,255 2,889 3,998 5,498 6,801 7,499 7,979 8,575 9,112
Prepaid expenses and other current assets 615 781 930 1,052 1,546 1,848 2,194 2,358 2,506
Total current assets $ 20,350 $ 21,052 $ 20,380 $ 23,556 $ 31,639 $ 33,879 $ 42,173 $ 47,117 $ 52,874
Long-term investments 16,166 17,711 19,605 18,827 18,792 23,868 27,703 27,703 27,703
Property, equipment and capitalized software, net 2,515 3,939 4,010 4,418 4,861 5,901 6,366 6,384 6,530
Goodwill 23,975 31,286 31,604 32,940 44,453 47,584 52,498 52,498 52,498
Other intangible assets, net 2,795 4,682 3,844 3,669 8,391 8,541 8,541 8,541 8,541
Other assets 2,088 2,215 2,439 2,972 3,247 3,037 3,037 3,037 3,037
Total assets $ 67,889 $ 80,885 $ 81,882 $ 86,382 $ 111,383 $ 122,810 $ 140,318 $ 145,280 $ 151,183
Liabilities & Shareholder's Equity

Medical costs payable 9,799 11,004 11,575 12,040 14,330 16,391 18,148 19,272 20,311
Accounts payable and accrued liabilities 6,853 6,984 7,458 9,247 11,994 13,361 14,259 15,142 15,958
Other current liabilities 1,225 1,505 1,600 5,965 7,798 10,339 12,963 13,766 14,508
Commercial paper and current maturities of long-term debt5,063 4,910 5,279 1,399 6,634 7,193 1,000 1,000 1,000
Unearned revenues 982 2,713 1,969 1,972 2,142 1,968 4,488 4,823 5,125
Total current liabilities $ 23,922 $ 27,116 $ 27,881 $ 30,623 $ 42,898 $ 49,252 $ 50,857 $ 54,004 $ 56,902
Long-term debt, less current maturities 10,656 14,041 14,891 16,007 25,460 25,777 27,777 25,777 23,777
Future policy benefits 2,445 2,444 2,465 2,488 2,496 2,524 3,162 3,411 3,609
Other liabilities 2,574 3,985 3,321 3,422 5,068 5,068 6,981 7,503 7,973
Total liabilities $ 39,597 $ 47,586 $ 48,558 $ 52,540 $ 75,922 $ 82,621 $ 88,777 $ 90,695 $ 92,261
Redeemable noncontrolling interests - 2,121 1,175 1,388 1,631 1,915 3,932 3,932 3,932
Common Stock & APIC 10 76 10 10 39 10 1,671 1,671 1,671
Accumulated other comprehensive loss 461 438 (908) (1,392) (3,334) (2,681) 240 240 240
Retained earnings 27,821 30,664 33,047 33,836 37,125 40,945 45,697 48,742 53,079
Total equity $ 28,292 $ 33,299 $ 33,324 $ 33,842 $ 35,461 $ 40,189 $ 51,540 $ 54,585 $ 58,922
Total liabilities and equity $ 67,889 $ 80,885 $ 81,882 $ 86,382 $ 111,383 $ 122,810 $ 140,318 $ 145,280 $ 151,183
Figure 30: UNH – Annual Cash Flow Statement

2011 2012 2013 2014 2015 2016 2017E 2018E 2019E
Cash Flow From Operations
Net income $ 5,142 $ 5,526 $ 5,673 $ 5,619 $ 5,868 $ 7,073 $ 9,264 $ 10,028 $ 11,581
Depreciation & amortization 1,124 1,309 1,375 1,478 1,693 2,055 2,249 2,340 2,360
(Increase) Decrease in Net Working Capital 309 (178) (306) 1,005 2,081 183 7,251 1,772 1,661
Other 393 498 249 (51) 98 484 (2,363) 771 667
Net cash provided by operating activities $ 6,968 $ 7,155 $ 6,991 $ 8,051 $ 9,740 $ 9,795 $ 16,402 $ 14,911 $ 16,269
Guidance $12 bln
Cash Flow From Investing Activities

Acquisitions / Dispositions (1,459) (6,280) (362) (1,923) (16,164) (1,760) (1,000) - -
Capex (1,067) (1,070) (1,307) (1,525) (1,556) (1,705) (1,714) (2,358) (2,506)
Guidance ~$1.7 bln
Net investments Sold / Purchased (1,695) (1,299) (1,611) 799 (531) (5,927) (4,378) - -
Other 49 - 191 115 (144) 37 - - -
Net cash provided by (used in) investing activities $ (4,172) $ (8,649) $ (3,089) $ (2,534) $ (18,395) $ (9,355) $ (7,092) $ (2,358) $ (2,506)
Free Cash Flow $ 5,901 $ 6,085 $ 5,684 $ 6,526 $ 8,184 $ 8,090 $ 14,688 $ 12,553 $ 13,763
Free Cash Flow / Share $ 5.42 $ 5.82 $ 5.55 $ 6.62 $ 8.46 $ 8.36 $ 14.92 $ 12.83 $ 14.28
Cash Flow From Financing Activities

Net change in debt 346 4,567 152 391 14,607 990 (4,193) (2,000) (2,000)
Common stocks repurchase (2,994) (3,084) (3,170) (4,008) (1,200) (1,280) (1,683) (4,047) (4,353)
Guidance ~$1.5 bln
Proceeds from common stock issuance 381 1,078 598 462 402 429 1,661 - -
Common dividends paid (651) (820) (1,056) (1,362) (1,786) (2,261) (2,829) (2,936) (2,891)
Guidance ~$2.4 bln
Other 428 (1,270) (1,470) (776) 216 1,111 4,938 - -
Net cash provided by (used in) financing activities $ (2,490) $ 471 $ (4,946) $ (5,293) $ 12,239 $ (1,011) $ (2,106) $ (8,983) $ (9,243)
Effect of exchange rate changes on cash and cash equivalents $ (86) $ (5) $ (156) $ 78 $ - $ - $ -
Net increase (decrease) in cash and cash equivalents$ 306 $ (1,023) $ (1,130) $ 219 $ 3,428 $ (493) $ 7,203 $ 3,570 $ 4,520

2 November 2017
Companies Mentioned (Price as of 01-Nov-2017)

Aetna, Inc. (AET.N, $171.8)
Anthem, Inc. (ANTM.N, $209.53)
Centene Corporation (CNC.N, $96.65)
Cerner Corporation (CERN.OQ, $65.49)
Cigna Corporation (CI.N, $197.84)
DaVita Inc. (DVA.N, $59.83)
Envision Healthcare Corporation (EVHC.N, $28.03)
Humana Inc. (HUM.N, $255.48)
Inovalon Holdings Inc (INOV.OQ, $16.4)
Maximus (MMS.N, $65.88)
Molina Healthcare, Inc. (MOH.N, $68.18)
UnitedHealth Group Inc. (UNH.N, $209.53, OUTPERFORM, TP $233.0)
WellCare Health Plans, Inc. (WCG.N, $200.91)
Disclosure Appendix
Analyst Certification
I, A.J. Rice, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities
and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
3-Year Price and Rating History for UnitedHealth Group Inc. (UNH.N)
UNH.N Closing Price Target Price Target Price Closing Price UNH.N
Date (US$) (US$) Rating
02-Dec-14 99.83 110.00 O 200
21-Jan-15 109.32 120.00
180
30-Mar-15 121.00 135.00
160
19-May-15 120.55 NR
16-Dec-15 118.83 133.00 O* 140
03-Mar-16 121.82 138.00 120

19-Apr-16 130.50 141.00 100
08-Jun-16 140.40 148.00
01- Jan- 2015 01- Jan- 2016 01- Jan- 2017
19-Jul-16 142.59 155.00
18-Oct-16 143.39 160.00 O U T PERFO RM
N O T C O V ERED
28-Nov-16 152.11 168.00
29-Nov-16 157.59 179.00
17-Jan-17 160.66 180.00
20-Mar-17 168.00 185.00
18-Apr-17 168.59 188.00
31-May-17 175.18 195.00
13-Jul-17 185.48 200.00
28-Aug-17 195.09 NC
* Asterisk signifies initiation or assumption of coverage.
Effective July 3, 2016, NC denotes termination of coverage.
The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's
total revenues, a portion of which are generated by Credit Suisse's investment banking activities
As of December 10, 2012 Analysts’ stock rating are defined as follows:
Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months.
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2 November 2017
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Target Price and Rating

Valuation Methodology and Risks: (12 months) for UnitedHealth Group Inc. (UNH.N)
Method: We use Sum of the Parts (SOTP) analysis to value UNH shares. Based on our comps analysis, we estimate the company's Optum
business should trade at roughly 20x our 2019 EPS estimate for the segment, while UHC business should trade at 17x our 2019 EPS
estimate for the segment. This leads to a blended target multiple of roughly 18.5x, yielding a price target of $233 and an Outperform
rating.
Risk: Risks to our $233 target price and Outperform rating for UNH are any deterioration in Medicare Advantage enrollment and margins and an
increase in health care utilization, along with any regulatory changes that result in adverse effects on the PBM industry business model.
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See the Companies Mentioned section for full company names
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WCG.N, MOH.N, INOV.OQ
Credit Suisse provided investment banking services to the subject company (UNH.N, AET.N, ANTM.N, HUM.N) within the past 12 months.
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ANTM.N, HUM.N
2 November 2017
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2 November 2017
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2 November 2017

UnitedHealth Group Inc. (UNH)

UnitedHealth Group Inc. (UNH)

Source: Company data, Thomson Reuters, Credit Suisse estimates

UnitedHealth Group Inc. (UNH) 2

Price Performance and Valuation 21

Credit Suisse PEERS 25

UnitedHealth Group Inc. (UNH) 3

Source: Company data, Credit Suisse estimates.

Figure 2: UnitedHealthcare Employer & Individual Business Enrollment

Source: Company data, Credit Suisse estimates.

UnitedHealth Group Inc. (UNH) 4

Long-Term Growth Targets Highly Attractive Relative

Figure 3: UNH's PEG vs. DJIA vs. Other HC Stocks in DJIA

UNH DJIA Other HC Stocks in DJIA

UnitedHealth Group Inc. (UNH) 6

Market Strength and Business Momentum at UHC

Well Positioned to Outpace Industry Growth in MA

UnitedHealth Group Inc. (UNH) 7

Figure 4: Medicare Advantage Market Share

UnitedHealth Group Inc. (UNH) 8

Figure 5: UNH's MA Enrollment Trends (in mlns)

2010 2011 2012 2013 2014 2015 2016 2017E

Source: Company data, Credit Suisse estimates.

Figure 6: UNH STAR Ratings Trend (as a % of Enrollment in 4 or 4+ STARs)

2013 2014 2015 2016 2017 2018 2019

Source: Company data, Credit Suisse estimates, CMS.

UnitedHealth Group Inc. (UNH) 9

Strong Medicaid Franchise

Optum – A Compelling Growth Engine

UnitedHealth Group Inc. (UNH) 10

We estimate Optum to represent roughly 44% of UNH’s operating earnings in 2017,

Figure 9: Earnings Split Between UHC & Optum

61% 58% 56%

39% 42% 44%

2011 2012 2013 2014 2015 2016 2017E

UnitedHealth Group Inc. (UNH) 12

UnitedHealth Group Inc. (UNH) 13

Figure 10: OptumHealth – Revenue and Margin Trend (2011-2017E), $ in blns

2011 2012 2013 2014 2015 2016 2017E

OptumInsight – A High-Margin Business with Strong Growth Drivers

Figure 11: OptumInsight Contract Revenue Backlog Trends ($ in blns)

2011 2012 2013 2014 2015 2016 3Q17

Source: Company data, Credit Suisse estimates.

Figure 12: OptumInsight – Revenue and Margin Trend (2011-2017E), $ in blns

2011 2012 2013 2014 2015 2016 2017E

Source: Company data, Credit Suisse estimates.

OptumRx – An In-House PBM Gaining Traction on External Growth

Figure 13: OptumRx – Revenue and Margin Trend (2011-2017E), $ in blns

2011 2012 2013 2014 2015 2016 2017E

UnitedHealth Group Inc. (UNH) 16

Essentially No Exposure to the Uncertainty Related

Strong Management Team with the Deepest Bench in

An Active Capital Deployment Strategy Facilitated by

UnitedHealth Group Inc. (UNH) 17

Figure 14: UNH's Share Buyback History ($ in blns)

2011 2012 2013 2014 2015 2016 2017E

Source: Company data, Credit Suisse estimates.

Figure 15: UNH's Acquisition Spending History ($ in blns)

2011 2012 2013 2014 2015 2016 2017E*

UnitedHealth Group Inc. (UNH) 18

The PBM Segment Has Headline Risk

International Segment Results Have Been Volatile

UnitedHealth Group Inc. (UNH) 19