UNH Stock Vs. CVS Stock
CHONGQING, CHINA - APRIL 26: In this photo illustration, the logo of CVS Health Corporation is ... More displayed on a smartphone screen, with the company's red heart branding visible in the background, on April 26, 2025, in Chongqing, China. (Photo illustration by)
Health insurance companies have been in the limelight lately after UnitedHealthcare suspended its guidance for the full year citing higher medical costs. This comes during a challenging time when the CEO Andrew Witty also stepped down for 'personal reasons.' To top things off, The Wall Street Journal reported that UnitedHealth is now under criminal investigation for possible Medicare fraud. See more – Is UNH Stock Now A Falling Knife?
UnitedHealthcare stock is down 21% in a week while CVS stock is down 10%. Between the two of them, we believe CVS stock is currently a better pick. CVS stock trades at 9.4x trailing adjusted earnings, compared to 10.2x for UNH stock. UnitedHealth's better revenue growth and profitability explains the difference between the two. However, we think this gap in valuation will narrow in favor of CVS over the coming years. In the sections below, we discuss why we think CVS is a better pick than UNH by comparing a slew of factors, such as historical revenue growth, returns, and valuation. But, if you want upside with a smoother ride than an individual stock, consider the High-Quality portfolio, which has outperformed the S&P, and clocked >91% returns since inception.
CVS has seen its revenue rise at an average annual rate of 8.5% from $292 billion in 2021 to $373 billion in 2024. On the other hand, UnitedHealth's average revenue growth rate of 12% from $285 billion to $400 billion over this period has been comparatively better.
CVS Health's revenue growth fueled by positive performance in both its Medicare and Commercial plans. A key driver of this growth was an increase in total medical membership, which rose from 24.4 million in 2021 to 27.1 million currently. This upward trend in membership is anticipated to persist in the coming years, largely due to the aging U.S. population. Furthermore, CVS Health's pharmacy and consumer wellness business has demonstrated strong performance recently, propelled by higher prescription volumes and a favorable pharmacy drug mix.
In contrast, UnitedHealth Group's revenue growth in recent years has been primarily driven by the escalating demand for its OptumHealth business, which delivers healthcare through local medical groups. To illustrate this, OptumHealth's revenue surged by 95% between 2021 and 2024, significantly outpacing the 39% revenue increase for the company as a whole. This substantial growth in OptumHealth can be attributed to a greater number of patients served under the company's value-based care models, including the expansion of at-home services. While OptumHealth has been the primary growth engine, UnitedHealth Group's other segments, such as its pharmacy benefit management (PBM) division, OptumRx, have also performed well. Additionally, the overall increase in Medicare membership has provided a tailwind for its insurance business.
Buy or sell CVS stock?
Between 2021 and 2024, CVS experienced a decline in operating margin, falling from 5.2% to 2.6%. In contrast, UnitedHealth Group (UNH) saw its operating margin improve from 7.6% to 8.1% during the same period. Examining the most recent twelve-month performance further highlights this difference, with UNH reporting an operating margin of 8.2% compared to CVS's 2.9%.
Recently, both companies have faced pressure on their margins due to increasing medical costs. CVS's medical benefits ratio, which indicates the proportion of premiums spent on medical claims, rose significantly to 92.5% in 2024 from 85% in 2021. Similarly, UNH's medical benefits ratio increased from 82.6% to 85.5% over the same timeframe. Given the aging U.S. population and the general rise in healthcare expenses, it is anticipated that the medical benefits ratio for both companies will remain elevated in the near term. This increasing pressure on profitability has been a significant factor contributing to the recent underperformance of health insurance stocks.
Regarding financial risk, UnitedHealth Group appears to be in a stronger position than CVS Health. UNH's debt-to-equity ratio of 18% is significantly lower than CVS's 107%, indicating a considerably lower level of debt relative to its equity. Additionally, UNH's cash-to-assets ratio of 11% is higher than CVS' 5%, suggesting a greater cash reserve relative to its total assets. Consequently, these metrics imply that UNH has a more favorable debt profile and a larger cash cushion compared to CVS.
UNH stock has seen a 15% fall, moving from levels of $330 in early January 2021 to around $280 now, while CVS stock has seen little change, staying around levels of $60. This compares with an increase of about 55% for the S&P 500 over this roughly 4-year period – indicating that CVS and UNH underperformed the S&P in 2023 and 2024.
In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for heavyweights in the Health Care sector including MRK, PFE, and JNJ, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks has a history of comfortably outperforming the S&P 500 over the previous four-year span. Why is that? As a collective, HQ Portfolio stocks have delivered superior returns with reduced risk compared to the benchmark index; less of a roller-coaster experience, as shown in HQ Portfolio performance metrics.
We see that UNH has demonstrated better revenue growth, is more profitable, and has a better financial position. However, looking at valuation, we think CVS is the better choice of the two. At its current levels of around $60, CVS stock is trading at 9.4x trailing adjusted earnings of $6.36 per share, aligning with the stock's average P/E ratio over the last four years.
In comparison, at it current levels near $260, UNH stock is trading at 9.3x trailing adjusted earnings of $27.96 per share, versus the stock's average P/E ratio of 22x over the last three years. Taking into account the rise in overall medical costs, a fall in valuation multiple for both stocks seem justified. However, despite its attractive valuation UNH seems to have a high risk exposure, especially with the criminal investigation for Medicare fraud. We believe that the valuation gap between the two companies should narrow in favor of CVS, as the profitability of CVS improves. CVS is also undergoing restructuring aimed at improving efficiency and reducing costs.
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SmartAsset and Yahoo Finance LLC may earn commission or revenue through links in the content below. I turn 59 in September 2025 and I plan to retire at 62 with no debt. I have $1.2 million in a traditional IRA and $200,000 in a workplace Roth 401(k). I have an emergency cash fund in a high-yield savings account. I earn $320,000 per year and annually contribute $30,000 to the Roth 401(k), plus I get a match on the first 6%. My only current debt is a $170,000 mortgage on a home worth $625,000. My wife and I will collect around $3,500 each month in Social Security at age 62. I have savings set aside to bridge medical insurance until Medicare coverage starts at age 65. Our projected expenses-which include property taxes, health insurance and auto insurance, plus normal living expenses-will be around $7,000 per month at age 62. Is this a good plan? What could I do to make it better besides delaying retirement? – Shaun Shaun, based on what you've shared, it looks like you're in solid financial shape. While the finer details will influence your final decision, we can take a step back and look at the broader picture to see why retiring at 62 seems within reach. After that, I'll walk through a few suggestions I'd consider if I were in your position. Whether you're getting ready to retire or just starting to save for it, a financial advisor can help you plan for the future. . You've already taken a helpful first step by estimating your retirement expenses. The next move is to compare those costs to any sources of guaranteed income you expect to receive, such as pensions, annuities, or Social Security. You and your wife are expecting to receive about $3,500 per month in Social Security benefits, which I assume is based on your latest estimate. If your monthly spending is projected at $7,000, that leaves a gap of roughly $3,500 that would need to be covered by withdrawals from your retirement savings-setting taxes aside for the moment. (And if you need help deciding when to claim your Social Security benefits, speak with a financial advisor about your options.) Next, let's estimate the value of your savings when you retire. You've got about $1.4 million in retirement accounts with three more years of contributions and growth ahead of you. You're saving $30,000 per year in your Roth and getting a 6% match. You didn't specify the structure of the match so let's go with the common 50% of 6%, but adjust this to fit your actual match if it's different. At $320,000 per year, that would come out to another $9,600, which I'll assume goes into a tax-deferred account. In addition to your contributions, the value of your Roth and tax-deferred savings will depend partially on the growth of your investments. We can use a range of estimates to see what that might look like based on some reasonable expectations of diversified asset allocations suitable for near retirees: Rate Roth Savings Tax Deferred Savings 5% $331,000 $1,421,000 6% $339,000 $1,462,000 7% $348,000 $1,500,000 Based on the assumptions I made, you could have anywhere from $1.75 million to $1.85 million in savings. Again, adjust for your own comfort level and investment plan if these assumptions don't seem to fit you. (If you're unsure how much money you'll have by the time you retire, a financial advisor can help you with investment projections.) Although I suggest you do a detailed analysis of your specific situation and talk this through with a tax accountant or financial advisor, we can use a rough estimate to get an idea of the income tax you might expect to pay on your retirement income. Even though you won't be retiring for another three years, I'll base my calculations on the 2025 tax rates and brackets just to illustrate how it works. Your Roth account is projected to make up just under 20% of your total retirement savings. For simplicity, I'll round that to 20% and assume that all withdrawals are taken proportionally. So, for every $100 you withdraw, we'll estimate that $20 comes from your Roth-tax-free-and $80 comes from your traditional IRA, which is subject to income tax. So, let's say you collect $42,000 in Social Security, 85% of which is taxable. That's $35,700 of taxable income. You'd then need to withdraw another $42,000 per year from savings to cover your expenses. Since 80% of the money you withdraw from retirement accounts will come from the traditional IRA, that will add another $33,600 to your taxable income for the year. As a result, your Social Security benefits and retirement account withdrawals would add up to $69,300. Taking the standard deduction ( $30,000 in 2025 ) would lower your taxable income to $39,300. Based on these income projections and the 2025 federal income tax brackets, you and your wife would be in the 12% marginal tax bracket. You would owe approximately $4,240 in federal income tax. If you plan to pay that bill using funds from your traditional IRA, you'd need to account for the fact that the withdrawal itself is taxable. To cover the tax while factoring in the tax on the withdrawal, you'd likely need to take out closer to $5,000 in total. However, if you used Roth funds to pay your tax bill, no additional income tax would apply to that withdrawal. All told, you'd be looking at withdrawing upwards of $47,000 from your tax-deferred savings and Roth 401(k), which together could be worth up to $1.85 million by the time you retire. That's a withdrawal rate of about 2.5%, which is quite low even if you didn't have home equity to tap into if needed. (And if you need additional guidance when it comes to tax planning, consider working with a financial advisor.) I think the premise of your plan is more than workable. However, there are some things I think you can do to make it better: Consider delaying Social Security: You accept a steep penalty for claiming Social Security early. Even if you retire at 62, it's quite likely that you'd be better off delaying Social Security. Unlike volatile investments, Social Security benefits grow by a fixed rate, which is 8% per year past full retirement age (until age 70). They also aren't fully taxable, and adjust for inflation. Optimize your withdrawal sequence for taxes: In the estimate above I assumed you'd take proportional withdrawals from your Roth and tax-deferred accounts. You may benefit from withdrawing from your tax-deferred balance first, and letting your Roth account grow. Consider Roth conversions: You would likely also benefit from partial Roth conversions during early retirement. This could let you take advantage of low tax years, especially before Income-related Medicare Adjustment Amount (IRMAA) becomes a factor, and help reduce future required minimum distributions (RMDs). Plan for long-term care: Although your retirement income needs are adequately covered, think about your plan for covering a potential long-term care situation. (For additional advice on how to improve your retirement outlook, match with a financial advisor today.) Your savings and Social Security benefits are likely enough to support $7,000 in monthly expenses in retirement. If you consider the potential suggestions I made above, you may find yourself in an even stronger financial position in retirement. A financial advisor who specializes in retirement planning and building financial plans can be a valuable resource as you prepare for your golden years. Finding a financial advisor doesn't have to be hard. SmartAsset's free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you're ready to find an advisor who can help you achieve your financial goals, get started now. Retirees often have assets spread across taxable, tax-deferred and tax-free accounts. Creating a withdrawal strategy that balances these sources can help reduce your lifetime tax burden. For example, drawing from taxable accounts first while allowing tax-advantaged accounts to grow may help manage taxable income in early retirement. Photo credit: Courtesy of Brandon Renfro, © Wackerhausen, © The post Ask an Advisor: We Have $1.4M Saved for Retirement. Can We Afford to Spend $7k Per Month? appeared first on SmartReads by SmartAsset. Sign in to access your portfolio
