UnitedHealth Group (NYSE:UNH) has no doubt had a bad week. It began with the abrupt resignation of CEO Andrew Witty, followed by the company withdrawing its 2025 guidance – less than a month after lowering its profit outlook. Then things got worse. On Wednesday, a Wall Street Journal report revealed that the Department of Justice is investigating potential Medicare fraud at the company. Cue another sharp drop in the share price, bringing the week’s losses to 25%.
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Watching these events unfold, RBC analyst Ben Hendrix offers some thoughts on the latest development.
“The timing of the article does not come as too much of a surprise, following closely on news of the group CEO change, operational headwinds, and related share weakness,” Hendrix said. “Given Thursday’s strong reaction to the article, we would expect additional press activity to emerge in the near-term, pressing the overhang.”
While recognizing the “near-term turbulence” and the limited information available about the scope and specifics of the reported DOJ investigation, Hendrix points out that scrutiny of the company’s business practices is nothing new. In particular, investigations into Medicare documentation and the integration of OptumHealth with UnitedHealthcare’s benefits operations have been reported in the media since early last year. It remains unclear to Hendrix how much of the information cited by the WSJ’s sources is genuinely new vs. part of ongoing, previously known DOJ activity.
“Even so,” the analyst concedes, “the headline-driven turbulence seems to be testing the patience of generalist and healthcare dedicated investors alike and eroding UNH’s long-held status as a core portfolio holding.”
That said, on a “pure fundamental basis,” Hendrix now thinks the shares are “well oversold.”
The analyst believes the market overreacted to the recent management change and the withdrawal of the guide, effectively pricing in “utilization risk” that Hendrix reckons translates to an additional 200 basis points of Medicare Advantage margin compression. This is in addition to the ~150 basis points already implied by the company’s revised guide offered with its Q1 earnings readout. Although Medicare Advantage margins are currently running below the company’s target range of 3–5%, Hendrix is reassured by the fact the business remains profitable. Combined with anticipated stronger MA rates for 2026, this should help facilitate a return to target margins.
“While clearly still trying to get a handle on deteriorating trend, we are encouraged by management’s confidence ahead of bids, noting that MA margin recovery is a top priority with multiple levers to achieve the low end of the target range next year,” Hendrix said on the matter.
All told, Hendrix remains a UNH bull, maintaining an Outperform (i.e., Buy) rating on the shares, although to reflect “revised EPS estimates and multiple compression on both accelerating cost trend and re-emergence of headline risk following report of incremental DOJ activity,” his price target goes from $525 to $355. Nevertheless, there’s still an upside of 24% from current levels. (To watch Hendrix’s track record, click here)
The Street’s overall take is more bullish than the RBC view; the average target clocks in at $450.09, suggesting shares will climb ~57% higher in the months ahead. Additionally, based on a mix of 21 Buys and 5 Holds, the analyst consensus rates the stock a Strong Buy. (See UNH stock analysis)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
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