UnitedHealth stock (NYSE: UNH) experienced a 6% decline on April 2, following an announcement from the U.S. Centers for Medicare & Medicaid Services that Medicare Advantage payments would increase by an average of 3.7% in 2025, which fell short of market expectations. This not only impacted UnitedHealth but also other Medicare and Medicaid service providers such as Humana, Molina Healthcare, and CVS Health. These healthcare providers have been struggling with rising medical costs, with UnitedHealth’s medical cost-to-benefit ratio increasing to 85% in Q4’23 compared to 83% in the previous year’s quarter. As a result, UNH stock has fallen almost 15% year-to-date, spooking investors.
Looking at UnitedHealth’s performance over a longer period, UNH stock has shown strong gains of 30% from early January 2021 to around $460 currently. However, the stock has not shown consistent growth over the years, with returns of 43% in 2021, 6% in 2022, and -1% in 2023. In comparison, the S&P 500 had returns of 27% in 2021, -19% in 2022, and 24% in 2023, indicating that UnitedHealth underperformed the index in 2023. Beating the S&P 500 consistently has been a challenge for individual stocks in recent years, including other heavyweights in the healthcare sector and mega-cap stars like Google, Tesla, and Microsoft.
Despite facing uncertain macroeconomic conditions such as high oil prices and elevated interest rates, UnitedHealth Group may face challenges in the coming months. However, analysts believe that UNH stock is currently undervalued, with an estimated valuation of $605 per share, reflecting over 30% upside from its current levels. With the stock trading at under 17x forward expected earnings for the full year 2024, compared to the last three-year average of 21x, there is potential for robust gains in the long term. While there are near-term challenges such as rising medical costs and lower than expected Medicare Advantage payments, analysts believe that the negatives are already priced into the stock.
Despite the potential for UNH stock to reach higher levels, it is essential to compare UnitedHealth’s performance with its peers. By analyzing metrics that matter, investors can assess the company’s position relative to other companies in the industry. This information is valuable for making informed investment decisions. Overall, investors are encouraged to consider entering UnitedHealth stock at its current levels as an opportunity for long-term gains, as the stock is believed to be undervalued with potential for growth. By carefully analyzing the market conditions and industry trends, investors can make informed decisions about their investment strategies.
