CVS Stock vs. UNH Stock: Which Is the Better Investment in 2024?

In a constantly evolving healthcare sector, investors often evaluate major players such as CVS Health Corporation (CVS) and UnitedHealth Group (UNH) to determine the stronger long-term investment. Both companies are leaders in their respective domains, with strong market positions and consistent financial performance. This comprehensive comparison highlights key metrics, growth prospects, and risk factors to determine which stock could offer better returns in 2024.

1. Company Overview and Business Segments

CVS Health Corporation (CVS):

CVS operates as a diversified healthcare company, primarily through three segments:

• Pharmacy Services: Includes prescription management, mail-order pharmacy, and pharmacy benefit management (PBM) through Caremark.
• Health Services: Aetna, acquired in 2018, brings health insurance capabilities to CVS, combining medical care and coverage.
• Retail/LTC: CVS operates over 9,000 retail locations, providing front-store services, prescriptions, and healthcare clinics.

UnitedHealth Group (UNH):

UNH is a global healthcare giant with two core divisions:

• UnitedHealthcare: The largest health insurance provider in the U.S., offering plans for individuals, businesses, and government programs.
• Optum: A rapidly growing segment that provides healthcare services, pharmacy care, technology, and data analytics.

Both companies leverage vertical integration to streamline healthcare delivery, but CVS has a more prominent retail presence, while UNH leads in health insurance and technology services.

2. Financial Performance Comparison

A detailed breakdown of key financial metrics highlights the strengths and differences between the two companies.

Metric	CVS Health (CVS)	UnitedHealth Group (UNH)
Revenue (FY2023)	$348 billion	$367 billion
Net Income	$7.5 billion	$20.5 billion
Profit Margin	2.15%	5.6%
EPS (TTM)	$5.95	$25.25
P/E Ratio	9.5x	21.3x
Dividend Yield	3.2%	1.3%

Key Takeaways:

• Revenue: UNH slightly edges out CVS with higher overall revenue.
• Profitability: UnitedHealth Group maintains stronger margins and profitability.
• Valuation: CVS is more attractively valued with a lower P/E ratio.
• Dividend Yield: CVS offers a higher yield, appealing to income investors.

3. Growth Opportunities

CVS Health's Growth Drivers:

• Expansion of Healthcare Services: CVS aims to drive growth through its HealthHUB concept, which integrates primary care services in retail clinics.
• Integration of Aetna: The acquisition of Aetna allows CVS to deliver more comprehensive, cost-effective healthcare solutions.
• Medicare Advantage Plans: CVS is poised to capitalize on the growing Medicare Advantage market, increasing enrollment and market share.

UnitedHealth Group's Growth Drivers:

• Optum Expansion: Optum continues to drive robust growth, particularly in pharmacy services and healthcare analytics.
• UnitedHealthcare Plans: With rising demand for Medicare Advantage and employer-sponsored plans, UNH is expanding its member base.
• Global Expansion: UnitedHealth has begun tapping into international markets, providing long-term diversification.

Both companies benefit from increasing healthcare demand, but UNH's investment in technology and analytics through Optum provides a competitive edge.

4. Risk Factors

CVS Health Risks:

• Retail Dependence: Declining foot traffic and competition from e-commerce could impact retail sales.
• Regulatory Pressures: As a major PBM, CVS faces scrutiny over drug pricing and PBM practices.
• Debt Load: Following acquisitions, CVS carries significant debt, which could hinder financial flexibility.

UnitedHealth Group Risks:

• Regulatory Challenges: UNH is vulnerable to changes in healthcare policies, especially related to insurance and reimbursement rates.
• Competition in Medicare Advantage: Rising competition could pressure margins in its key growth segment.
• Valuation Concerns: UNH's premium valuation may limit upside potential compared to CVS.

5. Stock Performance and Valuation

CVS Health (CVS):

• 52-Week Range: $66 - $90
• Current Price: $72 (as of December 2024)
• P/E Ratio: 9.5x (below the industry average)
• Outlook: With a lower valuation and strong dividend yield, CVS is undervalued compared to peers.

UnitedHealth Group (UNH):

• 52-Week Range: $450 - $540
• Current Price: $505 (as of December 2024)
• P/E Ratio: 21.3x (above industry average)
• Outlook: UNH's consistent earnings growth justifies its premium valuation, but downside risk exists if growth slows.

6. Future Outlook: Which Stock Is the Better Pick?

The choice between CVS and UNH ultimately depends on investment priorities:

• For Value Investors: CVS offers a compelling opportunity with its lower valuation, higher dividend yield, and growth in healthcare services.
• For Growth Investors: UNH's superior profitability, strong margins, and Optum's expansion make it an attractive long-term growth stock.

Mermaid Diagram: Comparison Summary

graph TD
A[CVS Health] --> B[Lower Valuation]
A --> C[Higher Dividend Yield]
A --> D[Retail & Health Services Growth]
E[UnitedHealth Group] --> F[Higher Profit Margins]
E --> G[Optum Growth]
E --> H[Premium Valuation]

7. Final Recommendation

Both CVS and UNH are poised to perform well in 2024, supported by strong demand for healthcare services. CVS offers a value-oriented investment with growth potential in healthcare services and a generous dividend. Meanwhile, UnitedHealth Group delivers stable growth, fueled by Optum and UnitedHealthcare's expanding member base. Investors should align their choice with their risk tolerance, investment strategy, and financial goals.

For value-focused investors, CVS stock is the better pick, while growth-oriented investors may favor UNH stock for its robust margins and innovation-driven expansion.