UnitedHealth Group (NYSE: $UNH) is a major player in the healthcare industry, offering a broad range of insurance coverage and services focused on fostering individual well-being while optimizing the healthcare system’s efficiency.
UnitedHealth (UNH) stock fell starting on Monday, April 1, 2024, after the Centers for Medicare and Medicaid Services (CMS) announced final Medicare Advantage rates for 2025. The news comes amidst ongoing recovery efforts from a cyberattack on Change Healthcare, a subsidiary of UnitedHealth.
2025 Medicare Advantage Rates
According to CMS, the Medicare Advantage plans’ final rates for 2025 will stay consistent with the initial proposals announced in January. This equates to an average uptick of 3.7%, totaling over $16 billion. While this signifies expansion for the program, analysts were forecasting around 4.7% based on past announcements by CMS, which has announced increases od around 1.22% every year since 2019 to their preliminary figure.
The final rates could place additional pressure on margins for the insurer, already struggling with heightened medical costs and uncertainty regarding claims processing following the cyberattack at UnitedHealth.
The announcement negatively impacted investor confidence in UNH, the leading participant in the Medicare Advantage sector. UNH’s closing price on Monday was $489.70, reflecting a 1.01% decline from the prior day. This downturn contrasts with the broader market, as the S&P 500 only saw a daily decrease of 0.2%.
UnitedHealth Hack a Minor Setback
On a brighter note, Fitch, the rating agency, stated that the cyberattack on UnitedHealth’s tech unit, Change Healthcare, is not expected to have any credit impact on not-for-profit hospitals in the United States. According to Fitch, as long as these hospitals can swiftly return to normal operations and maintain a substantial cash reserve, there should be no negative rating consequences associated with the hack.
The February attack by ALPHV, a ransomware group, significantly impacted Change Healthcare’s claims processing and payment systems. This caused cash flow issues for healthcare providers, delaying payments and hindering patient care.
UnitedHealth Group responded proactively, allocating $2 billion to assist affected healthcare providers. The company diligently worked to restore operations swiftly and expressed a strong dedication to rectifying the situation for patients and care providers.
Andrew Witty, the Chief Executive Officer at UnitedHealth Group, stated, “All of us at UnitedHealth Group feel a deep sense of responsibility for recovery and are working tirelessly to ensure that providers can care for their patients and run their practices, and that patients can get their medications. We’re determined to make this right as fast as possible.”
UNH Outlook: Strong Earnings Outlook
Looking ahead, analysts project a positive earnings picture for UnitedHealth. The upcoming Q1 2024 report, scheduled for release on April 16th, is expected to show a 7.67% year-over-year increase in earnings per share (EPS) to $6.74. Revenue is also expected to climb 8.18% to $99.45 billion.
Analyst estimates project even stronger growth for the full year. UNH’s full-year earnings are anticipated to reach $27.82 per share, marking a 10.75% increase. Revenue is expected to reach $401.01 billion, reflecting a 7.91% year-over-year increase.
UNH Stock Update
UNH shares concluded trading on Monday at $489.70, lower than the 50-day moving average of $502.58 and the 200-day moving average of $508.94. During the morning session on Tuesday, April 2, 2024, the stock sunk a further 7.27% to $454.09 per share. The company’s current market capitalization stands at $418.567 billion.
UNH stock price is down 0.72% over the past year, compared to a 27.88% S&P 500 index gain. During this period, the stock has fluctuated between a high of $554.70 and a low of $445.68. Notably, investors appear willing to pay a premium for UNH stock, as its forward P/E ratio is 17.78, exceeding the industry average of 17.39.
Analysts Bullish on UnitedHealth
Analysts remain bullish on UNH, with 17 analysts offering a 12-month average price target of $591.29, representing a potential upside of 30.28% from the current price. The most optimistic forecast reaches $675, while the lowest is $480, with 15 of 17 analysts recommending a buy rating for UNH stock.
Is UNH a Buy Now?
Medicare Advantage rate stagnation and a recent cybersecurity breach have presented temporary obstacles for UnitedHealth. However, the company’s robust earnings projections and positive analyst sentiment hint at a bright future. Investors are encouraged to vigilantly track the forthcoming earnings release and the organization’s recovery from the cyberattack to make informed decisions regarding UNH stock.
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