UnitedHealth (NYSE:UNH) stock has had an ugly few months – there’s no easy way to sugarcoat it. The company has now missed EPS targets in two consecutive quarters, and management has admitted to underestimating annual medical costs by $6.5 billion.
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Adding insult to injury, UNH’s revised guidance for Fiscal 2025 – unveiled late last month after pulling its prior outlook in May – landed far below expectations, with revenue projections more than $2 billion short and EPS guidance nearly $5 lower than projections.
As a result, the stock has shed close to 60% of its value since a mid-April peak, and analysts have been steadily marking down EPS forecasts through 2028.
Yet, amid the carnage, some contrarians believe this may be the moment when ugly starts to get interesting. Investor Kenio Fontes is one of them.
“Despite negative headlines, the stock’s valuation is now compelling, with forward P/E ratios at multi-year lows and expectations set very conservatively,” explains the 5-star investor.
Fontes highlights UNH’s entrenched strengths – vast scale, extensive data, market power, and an undisturbed core business – as reasons it could stage a turnaround. Last quarter’s revenue of $111.6 billion beat estimates by $31.15 million and posted double-digit growth year-over-year, suggesting that operational momentum remains intact.
While there’s no guarantee the share price has hit bottom, Fontes believes the broader market’s fear has already peaked, potentially signaling that the worst is priced in. “With the market in this state, the company has already set expectations low, preparing for the ‘worst,’” he notes.
Trading at a forward 2026 P/E of 12.8x, a return to UNH’s five-year average near 20x would imply gains north of 50%. The investor deems this a fairly reasonable scenario, one that is contingent on the company normalizing profitability.
For now, Fontes is willing to give UNH the benefit of the doubt, but only with a tight leash. “I maintain a very cautious buy rating: this is a volatile, high-risk opportunity that must be closely monitored, not a buy-and-forget stock,” the investor summed up. (To watch Kenio Fontes’ track record, click here)
Meanwhile, Wall Street’s consensus skews positive, with 18 Buys, 4 Holds, and 2 Sells translating into a Moderate Buy rating. The $312.65 average price target implies ~24% upside from current levels, suggesting that, despite the company’s missteps, many analysts still see rebound potential. (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.