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United Healthcare: Earnings, A $200 Billion Overreaction
United Healthcare: Earnings, A $200 Billion Overreaction

Yahoo

time6 hours ago

  • Business
  • Yahoo

United Healthcare: Earnings, A $200 Billion Overreaction

One of the most dramatic reactions from the Q1 2025 earnings season came from United Healthcare (NYSE:UNH), which shed over $200 billion in market cap and cratered 23% intra-day post-earnings along with continued decline upon the resignation of its CEO and a potential DOJ inquiry. At first glance, that kind of move suggests something catastrophic although the actual results paint a very different picture. Warning! GuruFocus has detected 4 Warning Sign with UNH. The selloff was driven by a 2% increase in Medicare Advantage costs and higher utilization trends (greater related medical expenses), which led to a reduction in 2025 earnings guidance from $29 to $26 per share initially and later with guidance lifted. That's collectively a $3 hit to EPS which is material from initial guidance, but not earth-shattering especially considering UNH is stil projected to have 20.65 billion in 2024 full year net income based on revisions of major investment banks aggregated by Refinitiv along with 25-30 billion for FY26. That level of profit implies a P/E of roughly 12 and a forward P/E of less than 10 (representing a forward cash flow yield of 10%, a truly absurd financial metric for a company of this size), which is deeply discounted for a business of this scale, profitability, and consistency. The increase in utilization is also expected within the earnings call to normalize to historical averages in the near future and this isn't the first time a Medicare Advantage utilization has caused the share price to decline. In June 2023 a similar utilization increase was seen and the effects were short lived, negligible to profitability and the share price quickly was achieving new highs just a six weeks later. Given how the insurance operation works, premiums can also be raised to offset additional care expenses encountered to maintain similar margins and levels of profitability. The CEO also stepped down due to stated personal reasons, while for investors having a CEO step down is typically seen as something negative, the successor for the position is the long term prior CEO Steven J Hemsley, an executive that oversaw exceptional increases in financial operations, efficiency, and stewardship of the company through industry opportunities. While the stock declined rather significantly upon his appointment, this would seem to be dramatic given the prior CEO executed incredible shareholder returns and growth of operations. The last contributor to major negative sentiment is the "announcement/accusation" by journalists a DOJ probe into medicare advantage billing escalating from civil to criminal (uncorroborated by the DOJ or any legal agency), the company explicitly denied any knowledge or informational requests related to such a probe or its supposed existence and given a prior legal ruling in the civil case that there was no apparent incorrect coding for billing, the legitimacy of this seems to be in question. While if the probe is found to be legitimate in the future, as incredible as it sounds, the company would also likely not have any difficulty financing a fine/outlay of significant size. UNH generates profits from a few large business segments albeit diversified due to the massive scale, the insurance operation in which premiums are received and invested/used to pay out claims respectfully and represents the largest health insurer in the US. The other major component of business operations is Optum, which consists of its pharmacy benefit manager operations, Optum Health which directs healthcare directly, and Optum Insights which provides data analytics and consulting. The hit to guidance was within the legacy insurance segment, which remains wildly profitable although the real driver of earnings growth (a greater than 50% share of net income) is seen within Optum which would seem to be unaffected. UNH's capital allocation strategy has historically been a masterclass in shareholder returns. The company has averaged 2-4 billion in quarterly stock buybacks, while simultaneously paying out close to $8 billion in annual dividends all without compromising operations or balance sheet strength. The most recent buyback spike in Q4 2024 was nearly $5 billion, the largest in the past three years. Based on the outlandish profitability of UNH and the businesses clear willingness and ability to reward shareholders, once you throw in the fact that there is a significant discount being placed on the business by the market, it becomes clear this is a sizable overreaction and not reflective of the operations or strength of the company. *historically repurchases accelerate for UNH under market declines This level of profitability and shareholder alignment is rare, and it's even more compelling now that the market has mispriced the stock on short-term guidance noise. The biggest opportunities in investing often come when price temporarily detaches from financial reality and that's exactly what this looks like. With the regime of a current market built on fear and facing macroeconomic struggles, health insurance is generally considered a defensive, non-cyclical industry because demand for healthcare remains relatively stable regardless of economic conditions. People don't stop needing medical care during a recession and if anything, economic stress can drive higher Medicaid enrollment or subsidized marketplace coverage. For insurers like UNH, revenue is largely tied to premiums and government reimbursements, which are contractual or regulated and don't fluctuate with consumer sentiment or discretionary spending trends. Even during downturns, enrollment can remain stable or even grow as individuals shift from employer-sponsored plans to government-backed options. Unlike cyclical sectors like consumer discretionary or industrials, healthcare spending is inelastic and people prioritize it no matter what. Moreover, Medicare Advantage and Medicaid, which are a large part of UNH's book, are government-funded and relatively insulated from short-term economic cycles. As for the broader industry landscape, there are no meaningful moves underway to undercut or dismantle the private health insurance model. The regulatory outlook remains stable, and there are no current legislative pressures that would structurally alter the business model of companies like UNH. Importantly, this volatility in premiums is limited to the UnitedHealthcare segment. Optum UNH's faster-growing, higher margin division which continues to deliver strong performance across health services, pharmacy benefits, and data analytics. Together, this structure gives UNH a diversified revenue model that can weather temporary shocks in one segment without compromising overall earnings power and represents a significantly undervalued equity at current market prices. * TipRanks. (n.d.). UnitedHealth (NYSE:UNH) stock buybacks. Retrieved May 3, 2025, from This article first appeared on GuruFocus. 擷取數據時發生錯誤 登入存取你的投資組合 擷取數據時發生錯誤 擷取數據時發生錯誤 擷取數據時發生錯誤 擷取數據時發生錯誤

The hottest ticket in Britain's corporate calendar might surprise you
The hottest ticket in Britain's corporate calendar might surprise you

CNBC

time22-05-2025

  • Business
  • CNBC

The hottest ticket in Britain's corporate calendar might surprise you

This week saw one of the most important — and perhaps surprising — events in corporate Britain's annual calendar: the gala night of the Royal Horticultural Society (RHS) Chelsea Flower Show. This traditionally marks the beginning of what, in English high society, is referred to as 'the season.' Coined as such by Debrett's, the publisher and authority on society and etiquette, the summer social whirl was framed around the British royal family, which traditionally remained in London from April to July and from October until Christmas. This meant that Britain's ruling classes and key movers and shakers did the same — participating in balls, parties and court presentations. These have largely now faded away, but what remains is a series of sporting and cultural events where the great and good continue to get together. Highlights include opera at the Glyndebourne Festival; flat racing at the Epsom Derby, Royal Ascot and Glorious Goodwood meetings; rowing at the Henley Royal Regatta; yachting at Cowes and, of course, tennis at Wimbledon. All these events see gatherings of corporate chieftains, their bankers, lawyers and other advisors, but none brings together quite as many key figures, in a short space of time, as the Chelsea gala night: two hours of champagne (this year's bubbles were supplied by Pommery), canapes and networking over displays carefully cultivated by hundreds of professional gardeners and landscape architects. Tickets for the gala, which runs from 7 p.m. to 9 p.m. (the King, who is patron of the RHS, visits earlier in the afternoon), cost £620 ($827) while those for the gala dinner which follows on site go for £885. Many of the City's top bankers can be spotted there: recent attendees have included Anthony Gutman, co-chief executive officer of Goldman Sachs International; Russell Chambers, the former head of investment banking at Credit Suisse and Charlie Nunn, chief executive of Lloyds Banking Group. Leading business figures also regularly attend, including the likes of John Browne, the former chief executive of BP; Martin Sorrell, the advertising kingpin and Nigel Wilson, the former chief executive of Legal & General. Top politicians and policymakers can also be spotted at the event: George Osborne was a regular attendee when he was chancellor of the exchequer, while last year both Jeremy Hunt, then the chancellor, and Rachel Reeves, then his shadow, were guests of one of the U.K.'s major lenders. While the cultivation of plants is central to Chelsea, the cultivation of client relationships is also paramount. Headline sponsors of the event have included Merrill Lynch Investment Managers (now part of BlackRock) and asset manager M&G Investments. The seeds sown, too, are not necessarily of the horticultural kind. For example, the 2018 sale of data provider Refinitiv (since acquired by the London Stock Exchange Group) by Thomson Reuters to Blackstone is said to have had its origins in a meeting between David Craig, the Refinitiv chief executive, and Joseph Baratta, Blackstone's head of private equity, at the 2013 gala night. Long-time attendees grumble that the event does not have quite the pull it used to. There are arguably fewer bankers present than there were 15 years ago which, according to some, reflects caps on the value of corporate hospitality some business people are now allowed to accept. There is also a school of thought that modern CEOs are more likely to be seen competing in triathlons and, when they do accept invitations, it is likely to be for a more egalitarian and less elitist event such as, say, a Premier League football match. This year's gala suggested there may be some truth to that. From the C-suite, there were certainly more FTSE 100 chairs than CEOs in attendance, although several individuals who have in the last year stepped down from such roles were spotted among the blooms. Among the main talking points, a few common themes emerged. One was the uncertainty that continues to stalk businesses in the United States due to a combination of factors, chiefly President Donald Trump's tariffs, which several attendees suggested may benefit the U.K. if it drives capital and business investment elsewhere. Another is the impact that continues to be felt by Chancellor Rachel Reeves' decision to abolish the so-called 'non-dom' rules which enabled U.K. residents who declared their permanent home as being overseas to avoid U.K. tax on their foreign income and gains. It is credited with having driven hundreds of wealthy individuals out of the U.K. and harmed entrepreneurship in the process. The third theme, though, was altogether more surprising. The mood music surrounding the U.K. economy during the last 12 months has been unremittingly bleak. Yet there were, on Monday evening, an unexpectedly high number of corporate chiefs who, when questioned how their business was faring, answered along the lines of: 'I probably shouldn't say this, given the backdrop, but we're actually doing better than I expected so far this year.' The U.K. economy still faces headwinds, not least Reeves's recent increase in employer's national insurance contributions, which makes it more expensive to hire people. There is also a sense that the GDP figures for the first quarter of the year were flattered by stockpiling of goods and strong export figures ahead of Trump's tariffs kicking in. However, leaving the show on Monday evening, there was a strong sense that these surprisingly strong figures may not have been a flash in the pan.

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