UnitedHealth Declines 40.4% YTD: Here's Why it's Still Not a Bargain

Globe and Mail

2 days ago

UnitedHealth Group Incorporated UNH shares have tumbled 25.4% in the past month alone, bringing their year-to-date loss to 40.4%. That's well below the performance of both the broader industry (-29.2%) and the S&P 500 (flat). Among its peers, Humana Inc. HUM has declined just 8.1% and Elevance Health, Inc. ELV has gained 4%, underscoring UNH's uniquely sharp decline.
Historically considered a defensive healthcare stock, UnitedHealth's consistent earnings, stable dividend, and low beta (0.45) made it a favorite among risk-averse, long-term investors. But this year's selloff may not be a buying opportunity; it looks more like catching a falling knife.
UNH's Mounting Headwinds
UnitedHealth is facing simultaneous pressures across multiple business lines. The company missed both earnings and revenue estimates in the first quarter and withdrew its 2025 financial guidance. Meanwhile, rising medical costs, especially in the Medicare Advantage segment, continue to compress margins. Higher-than-expected patient volumes, particularly high-acuity cases, have further strained profitability.
Moreover, CEO Andrew Witty stepped down, prompting the return of longtime executive Stephen Hemsley. Soon after, a Wall Street Journal report revealed a criminal investigation into alleged Medicare fraud.
Additional setbacks include a major expansion of Medicare Advantage audits by the Centers for Medicare and Medicaid Services, raising the risk of penalties and reimbursement clawbacks. While Hemsley's $25 million stock purchase offered brief reassurance, the bounce was short-lived. The stock fell again after reports emerged alleging the company secretly incentivized nursing homes to avoid hospital transfers, an accusation the Department of Justice declined to pursue due to insufficient evidence, but one that damaged UNH's reputation nonetheless.
Investor sentiment is rapidly deteriorating.The Zacks Consensus Estimate for UNH's 2025 EPS has seen 12 downward revisions in the past month, while the 2026 EPS estimate has seen 10, without a single upward revision. Earnings for 2025 are now projected to decline by 17.3%, even as revenues are still expected to climb 12.9% year over year. (See the Zacks Earnings Calendar to stay ahead of market-making news.)
UNH Not Cheap Enough to Chase
At first glance, UnitedHealth appears attractively priced, trading at a forward P/E of 12.31X, well below its five-year median of 19.20X. However, that multiple still sits above the industry average of 11.50X. By comparison, Humana trades at 15.18X and Elevance at 10.54X, placing UnitedHealth somewhere in the middle despite the selloff.
But valuation alone is not enough to justify entry. Regulatory risk, cost pressures and reputational damage pose real threats to the company's business model. Optum Rx, UNH's pharmacy benefit manager, may also face headwinds from regulatory moves targeting PBMs' pricing power. President Trump's "most-favored nation" executive order will likely affect 'middlemen' and facilitate the direct sale of drugs to patients.
Whether these issues mark a temporary rough patch or signal deeper structural challenges remains to be seen. Either way, the margin of safety appears thin at the moment.
Is There a Path Forward for UnitedHealth?
Despite the turmoil, UnitedHealth retains significant competitive advantages. Its vertically integrated model, scale, and investments in AI and digital health position it to navigate long-term industry trends. Medicare Advantage rate increases in 2026 could provide some relief to margins.
As of March 31, 2025, UnitedHealthcare served 50.1 million members, up 1.9% year over year, driven by growth in self-funded commercial plans. U.S. healthcare spending continues to rise with an aging population and increasing chronic disease rates, trends that ultimately play to UnitedHealth's strengths.
Financially, the company remains on solid footing. It generated $5.5 billion in operating cash flow in the first quarter, up significantly from $1.1 billion the year prior and ended the quarter with $34.3 billion in cash and short-term investments. It also returned over $5 billion to shareholders through dividends and stock buybacks.
Final Verdict: Wait for Stability
UnitedHealth's near-term outlook remains clouded by a series of setbacks, including regulatory probes, leadership change, rising costs and the withdrawal of 2025 guidance. While the company maintains a strong market position and generates solid cash flow, these challenges have sharply undermined investor confidence. Ongoing legal scrutiny and continued earnings downgrades have only deepened uncertainty around a potential recovery.
With no clear catalysts in sight and the stock underperforming significantly, UnitedHealth carries a Zacks Rank #5 (Strong Sell). Investors may be better served waiting for signs of stabilization before re-entering.
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
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