UnitedHealth (NYSE:UNH) stock may have sunk like a stone – down 50% since the start of the year – yet the chance to buy a longtime industry leader at bargain-basement prices is hard for many investors to ignore.
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That optimism took another blow with the latest Q2 earnings release. While UnitedHealth did bring in $112 billion in revenues – a 13% year-over-year increase – earnings proved far less encouraging. The company acknowledged its 2025 pricing assumptions were badly off, underestimating actual medical costs by $6.5 billion.
It’s a shortfall that didn’t exactly take everyone by surprise. Many investors saw the losses coming – including one top investor, known by the pseudonym JR Research, who’s baffled that others didn’t see it coming.
“Please don’t tell me some of you went to catch the falling knife UnitedHealth Group Incorporated before the healthcare leader reported its Q2 earnings scorecard,” pleads the 5-star investor, who is among the very top 1% of TipRanks’ stock pros.
JR explains that there are plenty of structural issues that are combining to make UNH’s comeback journey ahead “arduous” indeed. These include past execution steps, the misguided pricing expectations, and much higher medical utilization ratios.
Moreover, the vast reduction in earnings is a concrete example – from an EPS of $29 to $30 all the way down to $16 for 2025 – that there will be no “magical quick fixes” for UNH.
And yet, there is a silver lining for investors, as the massive drop in value has decreased UNH’s Forward Price-to-Earnings ratio to 13.7x, which is some 20% less than the healthcare median. JR concedes that patient, long-term holders might still find value in sticking around.
That being said, with investor confidence in the dumps and a forward guidance that’s not exactly inspiring, JR thinks this is one to avoid.
“I’m still trying to grapple with why investors would find the prospect of catching the falling knife on UNH appealing at all,” concludes JR Research, who is giving UNH a Hold (i.e. Neutral) rating. To watch JR Research’s track record, click here)
Wall Street, on the other hand, isn’t ready to abandon UNH. With 18 Buy ratings far outpacing 3 Holds and 2 Sells, UNH enjoys a Moderate Buy consensus rating. Its 12-month average price target of $313.68 implies a 25% potential upside from current levels. (See UNH stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.