United Health Group (UNH) in Freefall: What I Think About the UnitedHealth Crash

What Happened

UnitedHealth Group's stock experienced a significant decline of 17.8% on May 13, 2025, closing at $311.38, marking its lowest point since 2020. This sharp drop was attributed to several interrelated factors:

• The company announced an immediate leadership change: Stephen Hemsley is taking over from Andrew Witty, who is stepping down for “personal reasons.” Hemsley previously served as CEO from 2006 to 2017 and will continue as chairman of the board. He expressed confidence that UNH will return to its long-term growth target of 13 to 16 percent (“the company expects to resume growth from 2026”).

• In the short term, the cost environment is deteriorating: “UnitedHealth has withdrawn its 2025 outlook as medical service utilisation continues to rise and is expanding across more care categories than observed in the first quarter. Additionally, medical costs for many new Medicare Advantage members at UnitedHealthcare exceeded expectations.”

• Regulatory and Legal Challenges: The company is under a U.S. Department of Justice investigation concerning its Medicare billing practices.

These combined issues have led to a loss of investor confidence, resulting in a substantial decrease in UnitedHealth's market value.

What You Need to Know

UnitedHealth Group currently generates a substantial portion of its profits through its core UnitedHealthcare (insurance) segment, which delivered operating earnings of $5.2 billion in Q1 2025 — an 18% increase year-over-year. Medicare Advantage continues to be a key growth driver, with membership rising to 8.2 million.

Its second major earnings engine is Optum, particularly Optum Health and Optum Rx. The latter — Optum Rx, UnitedHealth’s pharmacy benefit manager (PBM) — is the most exposed to potential regulatory changes. While Optum as a whole reported $4.5 billion in operating earnings in Q1 2025, the PBM segment could see pressure if reforms targeting pharmacy benefit structures move forward in Congress.

Current estimates suggest that 10–20% of Optum Rx’s profits could be at risk in the event of major regulatory changes. That equates to a moderate portion of group-wide earnings — and it’s worth noting that these potential headwinds appear to already be reflected in the stock’s valuation. EPS forecasts have been revised down accordingly.

My Perspective

Even on a reduced earnings per share (EPS) estimate of $23 — which is roughly 20% below consensus — UnitedHealth would still be trading at a forward P/E ratio of about 17.3. This is not excessive when considering the defensive nature of the broader business, especially the consistent, predictable earnings of the UnitedHealthcare segment.

That said, the recent 17.8% drop in UNH’s share price reflects more than just earnings risk. Investor sentiment has also been shaken by the sudden resignation of CEO Andrew Witty. In his place, Stephen Hemsley — who successfully led the company from 2006 to 2017 — has returned. His reappointment is seen as a stabilising force and a sign that management is focused on restoring confidence.

In the short term, stock prices are largely driven by sentiment and narrative. And clearly, the current market narrative is one of uncertainty — around both regulatory pressure and medical cost inflation. But in the medium to long term, what drives value is earnings growth and operational strength.

And here, the long-term outlook remains robust:

• Will UnitedHealth survive this volatility? Yes.

• Will it continue to grow? Yes — in line with U.S. GDP or better.

• Could it even benefit from regulatory change? Possibly. As history often shows, large, diversified, and well-capitalised companies like UNH tend to emerge stronger when regulations shift, as smaller competitors struggle to adapt.

So while near-term downside risk still exists, the fundamentals remain intact. The company continues to meet key criteria for long-term investors: strong earnings quality, business model stability, stable cash flows, and reasonable valuation — especially given its defensive positioning in the healthcare ecosystem.

The risks in the business model are political in nature and fairly manageable when you look at the various Optum divisions.

What I Do

I’ve increased my position (this is not investment advice).

The stock has lost 45% in a month. That’s something you don’t see often with a blue-chip stock like this.

The market is currently pricing in a complete revaluation of the insurance sector. The new — or rather returning — UNH CEO, Stephen Hemsley, has historically been a supporter of the Republican Party and is at least partially aligned with the Agenda 2025.

Is the CEO transition purely coincidental timing? I don’t think so.

UNH has a strong balance sheet and is currently trading at an EV/EBIT of 10.92 and EV/EBITDA of 8.2. At this valuation, the market is essentially treating Optum, the PBM business that generates half the group’s profit, as worthless.

Fundamentally, I think this is an overreaction, but as is often the case in the stock market, overreactions happen, and you have to live with that.

Maybe the recovery takes 6 months. Maybe 12. Or even 24. But in my view, over a 5-year horizon, UNH has a solid chance of returning to $550.

What the Analysts Say

Bank of America analyst Joanna Gajuk has downgraded UnitedHealth from “Buy” to “Neutral” and lowered the price target from $560 to $350. This follows UnitedHealth’s suspension of its 2025 outlook, after already cutting its Q1 forecast by 12 percent a month earlier. The reason: the Medicare Advantage trend has not only significantly deteriorated but is now also affecting more complex patient groups, such as dual-eligible members. UnitedHealth still expects to return to EPS growth in 2026 and to restore Medicare Advantage margins to 3 to 5 percent. However, according to the analyst, this could require flat or even negative membership growth in the Medicare Advantage segment to recover profitability. Bank of America is cutting both its estimates and valuation multiple due to uncertainty and a lack of near-term catalysts.

Morgan Stanley analyst Erin Wright has reduced her price target for UnitedHealth from $563 to $374 but maintains an “Overweight” rating. The latest EPS recalibration was “largely unexpected” and clearly disappointing following the April downgrade. However, after discussions with the company, Wright is “somewhat more confident” that the guidance adjustment is primarily driven by increased cost pressures in Medicare Advantage, which accelerated in April, rather than by longer-term or structural issues in OptumHealth. She is “hopeful” that the new leadership can help course-correct, though she acknowledges that this will “take time.”

Raymond James analyst John Ransom downgraded UnitedHealth two notches, from “Strong Buy” to “Market Perform”, without assigning a new price target. The company abandoned its 2025 outlook just one month after revising its Q1 guidance and is undergoing a leadership change, with Andrew Witty stepping down as CEO and former CEO Stephen Hemsley returning to the role. The analyst believes that while the market may have anticipated a leadership change, it “definitely did not expect” the company to retract its guidance only a month after the Q1 revision. According to Raymond James, UnitedHealth now has “very limited visibility” for the remainder of 2025, citing factors such as the upcoming Stars test in October and likely muted membership growth in 2026.

Update 15. May 2025 - The Justice Department is investigating UnitedHealth Group for possible criminal Medicare fraud

The report that UnitedHealth Group (UHG) is under criminal investigation for possible Medicare fraud means that the U.S. Department of Justice (DOJ) is currently examining whether UHG committed criminal acts as part of its Medicare Advantage business.

Specifically, the suspicion is that the company included diagnoses in patient records that were not made by treating physicians in order to receive higher payments from Medicare.

The Justice Department has already tried to sue $UNH for fraud and failed. One of the most recent attempts, according to the Wall Street Journal, collapsed two months ago: In March, a court-appointed special master recommended that a judge effectively dismiss a whistleblower lawsuit against UnitedHealth. The master had concluded that the government had not presented evidence showing that the diagnoses submitted for payment were actually incorrect.

Worth noting that the Department of Justice investigates many publicly listed companies – such as Google, Amazon, and Apple – and that allegations are often exaggerated. Lawsuits against UNH have also failed.

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Disclaimer: This content is for informational and educational purposes only and does not constitute financial advice. It does not consider your personal objectives, financial situation, or needs. You should consider whether the information is appropriate for your circumstances and seek professional advice before making any investment decisions. Investing in stocks carries inherent risks, and the application of any strategy may not eliminate the risk of loss. Market conditions, volatility, and unforeseen events can impact outcomes, and past performance is not indicative of future results.