UnitedHealth Group (UNH) has been a striking example of how even a giant, stable company well-established in its niche can collapse in just a few months. The health insurer and services provider has faced major challenges like Medicare funding cuts, rapidly rising medical costs, and regulatory pressures—all squeezing margins and delaying profit recovery.
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In the stock market, uncertainty often hurts more than bad news itself because it makes future projections unclear and more problematic to envisage. That’s partly why UnitedHealth has massively underperformed, losing over $320 billion in market value since April.
For something this big to happen, the market clearly sees the problem with UNH as structural, not just cyclical. It involves deep internal execution issues alongside major external industry headwinds. That makes it tough to predict how bad it will get.
Given the elevated level of uncertainty following the announcement of the company’s Q2 earnings results at the end of July, the firm’s valuation remains over-risked and overpriced, leaving me with no option but to turn Bearish on UNH stock.
At the Heart of UnitedHealth’s Struggles
Starting with the macro headwinds for UnitedHealth, the Centers for Medicare & Medicaid Services (CMS) has been implementing multi-year cuts to Medicare Advantage reimbursement rates since 2023. For UnitedHealth, Medicare Advantage makes up about 30–35% of the UnitedHealthcare revenues. CMS reimbursement cuts are expected to shave off billions annually from Medicare Advantage over the next few years.
While there’s no official estimate in the filings, I believe a $3–4 billion impact is a reasonable projection based on the scale of the ongoing reductions. Revenues are rising, albeit too slowly, according to TipRanks data.
On top of that, U.S. government healthcare reforms are in progress—some already passed, like the so-called “big, beautiful bill.” New legislation is projected to remove 10 million people from Medicaid coverage by 2034 (according to the CBO). This poses a huge risk to UNH’s future Medicaid revenue, currently grabbing the lion’s share of Optum’s revenues—a division that contributes to nearly half of UNH’s total operating earnings.
Another factor that makes UNH stock feel like “rolling the dice” is the ongoing federal investigations into coding practices and prior authorizations. These could lead to fines and, more importantly, reputational damage. Even small changes in how aggressively UNH codes or approves care could have outsized effects on a business running on mid-single-digit margins.
Finally, on the operational side, the former UnitedHealth management team struggled to strategically align the insurance and health services units. For example, in Medicare Advantage, UnitedHealth mispriced plans, overestimated margins, and underestimated medical cost trends. More broadly, the company was slow to adapt to industry changes and failed to act as a disruptor—despite having the tools to do so.
UNH Shifts Guidance and Floors Sentiment
The most recent earnings report on July 29 put the market’s skepticism about UnitedHealth’s share price into clear numbers. The company dramatically lowered its EPS guidance for fiscal 2025 to $16, down 42% from the original $29.75 estimate, which had implied 7.5% annual growth. Annual revenues are now projected at $446.75 billion, down from the initial $452.5 billion forecast given in Q4 2024.
This collapse in guidance is explained by reduced Medicare funding, along with increased medical activity and more aggressive billing practices. In technical terms, the higher medical cost burden pushed the Medical Care Ratio (MCR)—the percentage of revenue spent on medical expenses for insured individuals—to 89.4% in Q2.
That’s a quarterly increase of 4.6 points and 4.3 points year-over-year. For context, the MCR was 82.5% back in 2019. In other words, there’s less and less left over for profit, salaries, technology, or investment.
While the reduced 2025 guidance didn’t exactly surprise analysts in terms of EPS and revenue, long-term EPS estimates for 2028 to 2030 were already trimmed by 5% to 6% before the Q2 results, with revenue expectations lowered by 1% to 2% over the same period.
Premium Valuation Fades Alongside a Shrinking Moat
Even after the big drawdown, UnitedHealth still trades at a significant premium compared to its peers. Elevance Health (ELV) trades at about 9.1x forward earnings, CVS Health (CVS) at 10x, and Humana (HUM) trades at the same 14.7x forward earnings as UnitedHealth. Even if UnitedHealth manages to claw back to $30 EPS—which analysts expect sometime between 2028 and 2029—it would trade at around 8x earnings, suggesting that much of the recovery potential may already be priced in.
Historically, UNH has commanded a premium over traditional insurers because it’s more diversified, thanks largely to its massive Optum division in health services. The company benefits from a competitive moat based on its integrated ecosystem and its status as the largest health insurer in the US. The “too big to fail” perception has helped justify a higher valuation multiple.
TipRanks published regular company updates, focusing on key risks that may affect the firm across a range of categories. The most recent update shows UnitedHealth disclosing 20 risk factors in its most recent earnings report.
The problem now is that these moats are under scrutiny. With the company shifting from a solid performer to a more uncertain one for the reasons mentioned earlier, this premium valuation is starting to lose its meaning, in my view.
What is the Future of UNH Stock?
Despite past pullbacks, Wall Street remains surprisingly bullish on UNH. Of the 24 analysts covering the stock in the last three months, 18 are bullish, three are neutral, and two are bearish. UNH’s average price target is $315.05, suggesting an upside of ~28% over the next twelve months.
Uncertainty Weighs Heavily on Near-Term Prospects
There are far more uncertainties than certainties around UnitedHealth’s thesis, and that feeling only got stronger after Q2 results. Since the market tends to price in bad news better than uncertainty, I don’t expect the outlook to improve in the short to medium term (three to six months) enough to reverse UNH’s bearish momentum. That said, starting around 2026, we could begin to see margins and earnings growth recover at a healthy pace. Given that valuations haven’t de-risked enough for a positive outlook yet, I remain Bearish on UNH in the short to mid-term.