On Monday, Jefferies adjusted its stock price target for UnitedHealth Group (NYSE:UNH), bringing it down to $635 from the previous $643, while keeping a Buy rating on the stock. The adjustment comes amid a significant 9.7% decline in UNH's stock price over the past week, though InvestingPro data shows the healthcare giant maintains its position as a prominent player with a market capitalization of over $505 billion.
The firm acknowledged the recent guide for 2025, which suggests an increase of more than 150 basis points in the enterprise medical loss ratio (MLR), with Medicare Advantage (MA) at-risk MLR expected to rise by approximately 220 basis points year-over-year. The analysis pointed out several factors such as Part D growth, the impact of the two-midnight rule (2MR), and business mix as potential headwinds for the company.
The firm also touched upon the potential impact of public and regulatory scrutiny on prior authorization and utilization management (PA/UM) practices, noting that these are significant to managed care organizations (MCOs) for maintaining lower medical costs.
It was highlighted that UnitedHealth could face margin pressures, given that around 62% of its total revenue comes from at-risk premiums in various segments. Despite these concerns, the firm sees a low likelihood of severe near-term disruption, as UnitedHealth would have the ability to reprice for regulatory changes over time.
In the context of the 2025 MLR guide, the firm indicated that the management had intended to provide a detailed walkthrough, which was precluded due to an abrupt meeting termination.
Absent this, Jefferies estimated that commercial pressure and Medicaid mix could account for a consolidated pressure of 20 basis points, with the remaining pressure expected to come from the MA segment. Factors such as Part D spending and the 2MR were cited as contributing to the anticipated MLR increase.
Looking ahead to 2026, Jefferies started its EPS growth forecast below the long-range plan (LRP), citing comments from management that hinted at significant headwinds, including Part D reform and inadequate rates.
The firm's projection of a 10% year-over-year increase in EPS for 2026 falls short of the company's LRP of 13-16%. This conservative stance is attributed to the expected continuation of pressures from the Value-Based Insurance Design (V28) model, which could impact a significant portion of UnitedHealth's book of business.
Despite these challenges, InvestingPro analysis indicates the company maintains strong fundamentals with a beta of 0.59, suggesting lower volatility compared to the broader market. Moreover, UNH has demonstrated commitment to shareholder returns, maintaining dividend payments for 32 consecutive years.
For deeper insights into UNH's financial health and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively on InvestingPro.
In other recent news, UnitedHealth Group Inc (NYSE:UNH). has been the focus of several developments. The company's executive, Brian Thompson, was tragically killed, sparking a wave of public frustration towards the health insurance industry.
Amid this, UnitedHealth Group made key financial forecasts, projecting revenues between $450 billion and $455 billion for 2025, and net earnings per share ranging from $28.15 to $28.65. However, the projected operating cash flow of $32 billion to $33 billion falls slightly below analyst estimates of $33.77 billion.
Analysts from Stephens have set a new price target of $675 for UnitedHealth Group, based on the firm's 2026 estimated adjusted earnings per share. This adjustment aligns with the 2026 estimates and reflects the company's strong fundamentals, evidenced by a healthy dividend yield of 1.38% and a consistent dividend raise for 15 consecutive years.
Other analysts from TD Cowen, KeyBanc, and RBC Capital have also adjusted their price targets for the company following these financial forecasts.
In response to Thompson's death, UnitedHealth Group has not yet disclosed details about a successor or any interim leadership changes. Meanwhile, industry officials have defended the role of insurers and condemned any threats against industry professionals. It's clear that these recent happenings are significantly impacting UnitedHealth Group's landscape.
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