‘Only the Beginning,’ Says Top Investor About UnitedHealth Stock

It has been a deluge of bad news for UnitedHealth Group (NYSE:UNH) over the past two months.

A rare earnings miss during its Q1 2025 report – its first since 2008 – was quickly followed by the pulling of full year guidance, which the company blamed on rising costs and increased insurance utilization.

The surprise resignation of its CEO, reports that the U.S. Department of Justice is looking into UNH for potential Medicare fraud, and an announcement from the Centers for Medicare & Medicaid Services that it would be conducting audits of all eligible Medicare Advantage contracts between 2018 and 2024 didn’t exactly help matters, either.

All told, UNH’s share price has lost almost 50% of its value since early April. But, could this be an opportunity to buy this blue-chip company at a cheap valuation?

Not according to one top investor known by the pseudonym Cavenagh Research, who is not convinced that things will be turning around anytime soon.

“UnitedHealth faces structural margin compression, wage inflation, and regulatory headwinds, eroding its historical defensive premium and compounding downside risk,” explains the 5-star investor, who is among the top 4% of TipRanks’ stock pros.

There are a number of reasons for Cavenagh’s pessimism, including with Medicare Advantage, which the investor posits is entering a “multi-year squeeze.” Cavenagh further details that the new rate notice for 2025 will translate into a 3-5% revenue decline per member. Moreover, the retrospective audits could “claw back” millions of dollars in past overpayments.

“Investors haven’t fully internalized that these changes will not only lower revenue per member but also increase audit and compliance costs,” adds Cavenagh.

In addition, the investor notes that wages are increasing. With 90,000 clinicians and staff employed in its health network, even small bumps could lead to significant incremental cost increases for UNH.

The investor also notes that regulatory overhang is likely to persist for years. In this case, UnitedHealth Group’s large size is less of an asset, as the healthcare giant is more likely to attract the attention of the powers that be.

“UnitedHealth Group is quietly entering a period of structural vulnerability that the market has yet to fully price in,” concludes Cavenagh Research, who rates UNH a Sell. (To watch Cavenagh Research’s track record, click here)

Wall Street, however, is looking at the glass half full. With 19 Buys, 6 Holds, and 1 Sell, UNH enjoys a Moderate Buy consensus rating. Its 12-month average price target of $377.77 has an upside close to 24%. (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.