TO: David Wichmann, CEO, UnitedHealth Group

FROM: Mike Dwyer, Junior Analyst

DATE: April 6, 2018

SUBJECT: United Health is Outperforming Aetna

This memo provides a comparative financial analysis of UnitedHealth Group

“United” and Aetna, its closest competitor to demonstrate how United is
outperforming Aetna. This analysis relied on five financial indices: net income,
earnings per share, price to earnings ratio, revenue, and stock price. United is the
better company because of its larger net income, higher earnings per share, steadier
and undervalued price to earnings ratio, and also its performance in terms of
revenue.

Aetna is United’s closest competitor because it is ranked 43rd on the Fortune 100
scale Aetna is the best company to use as a benchmark- after analyzing other
companies in the healthcare sector using five key metrics: stock price, revenue,
price to earnings ratio, net income, and earnings per share Aetna stands out as one
of United’s closest competitors. Aetna is one of United’s largest competitors in terms
of market capitalization (CSI Market, 2018). Although only about a quarter of
United’s size, Aetna’s stock has preformed in a similar fashion. Aetna has gone
through the same external forces United has, and the similarities between the
companies allow for a meaningful comparison that can provide valuable insights
and ensure United’s continued success.

United’s Steady Growth in Net Income Proves Dominance

United’s net income has nearly doubled between 2015 and 2017, as shown in Figure
1 below. During that same time period, Aetna has seen a 20% decline in net income.
This demonstrates United’s ability to adapt to changing market pressures and
operate a more efficient company. United was able to grow net income drastically,
even during a period when revenue declined; making United a much stronger
company than Aetna. Figure 1 below clearly shows that United is able to generate
more profit and higher earnings than Aetna.
Figure 1: United’s Net Income Growth Outpacing Aetna

2017

2016 Aetna
United

2015

$0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000

(Yahoo Finance, 2018)

United’s Earnings Per Share are nearly Double Aetna’s Earnings

United’s earnings per share are almost double Aetna’s earnings. This is a good
metric to use for comparison because it scales earnings to a per share basis. This
metric proves United earns a lot more money, and is a better option for investors.

Figure 2: United’s EPS Nearly Double Aetna’s EPS

United $11.35
Aetna $5.75
(Yahoo Finance, 2018)

Aetna’s Declining P/E ratio shows lack of Investor Confidence

The price to earnings ratio comparison could be an area of concern. Investors are
willing to pay a higher premium for a share of Aetna’s earnings than they are willing
to pay for the same amount of United’s profits. Over the past year however, Aetna’s
p/e ratio has gone down from 39.67 to 29.53, showing a slide in investor confidence
in Aetna’s ability to generate growth. During the same period, United’s p/e ratio
went down less than one point. United’s lower p/e ratio also makes it the more
attractive option to investors who are looking for a better value when purchasing
stock.
Figure 3: Price to Earnings Ratio Comparison
United Aetna
4/6/17 21.17 39.65
10/6/17 22.51 29.87
4/6/18 20.89 29.53
(Yahoo Finance, 2018)

Aetna is more affected by market downturn than United

While United was able to increase its revenue by 18% in 2016, 2017 was a
tumultuous year across the industry. United saw revenue drop 19% from 2016,
reversing any gains realized in 2016. This would be concerning, except United still
saw net income grow around $3.7 billion between 2016 and 2017. Aetna’s revenue
declined to levels below their 2015 revenue while also realizing a decline in net
income. Between 2015 and 2017, United Health has seen its revenue decline by 5%
while Aetna’s revenue has decreased 24% within the same period. United’s
performance clearly exceeds Aetna’s performance.

Figure 4: United’s Revenue outperforms Aetna

2017

2016 Aetna
United

2015

$0 $40,000 $80,000 $120,000 $160,000 $200,000

(Yahoo Finance, 2018)

Stock Comparison Shows no Clear Winner

Both stocks have preformed in a similar fashion over the past twelve months.
However, United has grown at a slightly faster rate over the last six months, as
shown in figure 5 below. Despite United’s slightly faster growth, there is not enough
of a difference between the two stocks performance to allow for a meaningful
comparison to show which company is performing better.

$250.00

$200.00

$150.00

United
$100.00
Aetna

$50.00

$0.00

Figure 5: United and Aetna Stock Performance almost equal

(Yahoo Finance, 2018)
Bibliography
CSI Market. (2018, April 23). Accident and Health Insurance Sector. Retrieved April
23, 2018, from CSI Market:
https://csimarket.com/Industry/Industry_Data.php?ind=702
Yahoo Finance. (2018, April 20). Summary for Aetna Inc. Retrieved April 20, 2018,
from Yahoo Finance: https://finance.yahoo.com/quote/AET/
Yahoo Finance. (2018, April 20). UnitedHealth Group Incorporated. Retrieved April
20, 2018, from Yahoo Finance: https://finance.yahoo.com/quote/UNH/