To The Moon

$UnitedHealth(UNH)$

UnitedHealth Group (NYSE: UNH) saw its shares drop over 5% following its second-quarter earnings release, bringing the stock down to approximately $268 per share. Year-to-date, the stock has plummeted 46.8%, and over the past 12 months, it’s lost more than half its value. From a 52-week high of $630.73, UNH now trades much closer to its 52-week low of $248.88, set earlier in April.

A Mixed Quarter with Troubling Forward Guidance

Q2 results presented a mixed picture. Non-GAAP EPS came in at $4.08, missing consensus estimates by $0.37. Revenue was reported at $111.62 billion—up 12.9% year-over-year and in line with expectations. However, what truly rattled investors was the company’s full-year 2025 guidance.

Management now expects full-year revenues in the range of $445.5 to $448 billion—slightly below the street’s $449 billion consensus. Worse, adjusted EPS is forecast to be at least $16 per share, significantly below the prior consensus of $20.90. This downward revision sent shockwaves through the market and confirmed fears of a longer-than-expected earnings slowdown.

Slowing Growth at Optum and Medicare Reimbursement Pressures

Much of UNH’s prior valuation premium stemmed from the growth trajectory of Optum, the company’s diversified health services business. Optum had been delivering 16–25% growth rates as recently as 2022, but the latest results show growth has slowed to just 6.9% year-over-year. Compounding the issue, revenue from Optum Health fell 7% in the quarter and is expected to decline 4% for the full year.

This slowdown is largely attributed to recent Medicare Advantage reimbursement changes—specifically, the implementation of the V28 risk model, which affects how providers bill for care. With 90,000 physicians under the Optum umbrella, the changes are materially impacting revenue and earnings growth.

Market Reacts to Reset Expectations

Wall Street has responded swiftly. The consensus EPS forecast was cut sharply, and analysts now project the company will earn at least $4.90 per share less than previously expected. For a company that has historically under-promised and over-delivered, this marks a rare and significant reversal.

The EPS miss and lackluster guidance come on the heels of major C-suite changes. Back in May, UnitedHealth suspended forward guidance amid operational turmoil and brought back former CEO and current Chairman Stephen Hemsley to stabilize investor sentiment. While the company pledged greater transparency going forward, investors were clearly underwhelmed by the new outlook.

Dividend Strength Remains a Silver Lining

Despite its faltering growth, UNH still commands respect as a dividend compounder. The stock currently yields 3.13% with a modest payout ratio of 30%. The company has raised its dividend for 15 consecutive years, with a 15-year compound annual growth rate of 13.64%. UNH also carries an “A+” dividend safety rating from Seeking Alpha.

For long-term income investors, this alone may justify a position—especially if shares dip below $250 and enter true value territory. However, investors seeking growth may find better opportunities elsewhere in the current market environment.

Valuation: Not as Cheap as It Looks

Trailing-twelve-month (TTM) PE sits at 11.84, suggesting the stock may be undervalued. However, using updated forward guidance, the forward PE climbs to approximately 18.24, based on expected EPS of $14.65 and a current price around $267. This is notably above the simplistic backward-looking PE and places UNH in a more neutral valuation zone.

Historical context helps here: from 2017 to 2022, UNH typically traded between 18x and 26x forward earnings. The current 18x multiple, while more palatable than recent highs near 37x in 2024, does not indicate deep value—particularly given the EPS headwinds and decelerating growth.

Analysts Cut Targets but Remain Optimistic Long-Term

Analyst price targets have come down sharply. The highest is now $440, down from $700 earlier this year. The average target sits at $348, representing roughly 30% upside from current levels. The lowest target stands at $270—essentially where the stock trades now.

The broader takeaway? Wall Street acknowledges structural headwinds, but no one is calling for a collapse. With over 400,000 employees and a strong foothold in U.S. healthcare, UNH is unlikely to face existential risk. The company remains the tenth-largest U.S. employer, trailing only giants like Walmart and Amazon.

Technical Picture: Oversold, But Can Fall Further

The Relative Strength Index (RSI) sits at 31, inching close to oversold territory. Historically, any reading below 30 is considered oversold and can signal a potential rebound. However, as investors saw earlier this year—when the stock fell from $630 to $248—a low RSI alone is not a sufficient buy signal. UNH briefly recovered to $326 before retracing its steps back toward current levels.

Support levels suggest that a further breakdown to sub-$250 is plausible. Investors deploying a dollar-cost averaging (DCA) strategy may view this as an opportunity to accumulate shares. However, sharp rebounds are unlikely in the near term. The next 12–18 months may require patience, especially as Medicare Advantage profitability remains under pressure.

Understanding Where UNH Fits in Your Portfolio

It’s important to remember that UNH is not a growth stock. It’s a dividend-paying healthcare behemoth, best suited for dividend growth investors (DGI) or defensive-income portfolios. If you are a younger investor with a long time horizon and a higher risk tolerance, UNH may not align with your strategic objectives.

However, for those seeking stable cash flow, exposure to U.S. healthcare infrastructure, and a strong dividend track record, UNH has merit—particularly on continued weakness. Its low short interest of 1.44% also suggests minimal institutional expectation of further catastrophic downside.

Final Thoughts and Investment Verdict

UnitedHealth Group remains a high-quality operator facing a challenging macro and regulatory environment. EPS forecasts have been drastically cut, and investor confidence is shaken. But with a robust balance sheet, a modest payout ratio, and a long history of operational excellence, the stock may offer opportunity—if purchased strategically.

Is UNH a buy, hold, or sell?

• Verdict – July 2025 Entry Price ($268): Hold, with a Buy under $250. UNH is not priced for disaster, but neither is it a screaming bargain. Investors seeking high-growth potential should look elsewhere. Income investors willing to hold through volatility may consider initiating or adding to positions on further dips.

Key Takeaways:

1. Mixed Q2 results but disappointing forward guidance for 2025 spooked the market.

2. Optum Health weakness is a central concern as Medicare reimbursement reforms pressure margins.

3. Dividend remains strong with a 3.13% yield and a 15-year growth streak.

4. Forward PE of 18.24 places the stock in fair value territory—not cheap, but not expensive.

5. Stock could decline below $250, providing a more attractive entry point for dividend-focused investors.

6. Not a growth stock; best suited for DGI portfolios or patient value investors seeking stability.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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