Morningstar

UnitedHealth: Acknowledged DOJ Probe Into Medicare Advantage Program Highlights Risks

It remains to be seen whether these investigations will result in financial consequences.

The exterior of the United Healthcare building.
Jeffrey Greenberg/Universal Images Group via Getty
Securities in This Article
UnitedHealth Group Inc
(UNH)

Key Morningstar Metrics for UnitedHealth Group

After proactively reaching out to the Department of Justice following recent reports in The Wall Street Journal, UnitedHealth Group UNH announced it was cooperating with criminal and civil investigations into the firm’s Medicare Advantage program. Shares fell about 2% after this announcement.

Why it matters: These now-acknowledged investigations highlight key risks that have cut into shares in recent months, and we suspect fines or clawbacks of previous overpayments related to its MA plans are possible if wrongdoing is found.

  • UnitedHealth has been facing investigations into its MA practices, like risk-related upcoding, for about a decade, and it has yet to face significant financial consequences. In fact, this spring, a court-appointed special master could find no wrongdoing by the firm.
  • So it remains to be seen whether these investigations will result in financial consequences, but we have already included a potential $20 billion cash outflow in our model and lower Medicare Advantage margins than historical norms to reflect these risks.

The bottom line: We are keeping our fair value estimate for narrow-moat UnitedHealth at $473 per share and continue to view shares as undervalued for the risks.

  • However, investors should be aware of the elevated uncertainty and share volatility that may arise, given ongoing challenges at UnitedHealth.

Coming up: On the firm’s July 29 earnings call, it plans to give 2025 guidance under returning CEO Stephen Hemsley, and we think this announcement could act as a catalyst for shares (up or down) as investors clamor for a baseline in the firm’s earnings power.

  • When Hemsley took the helm in May, UnitedHealth withdrew its April-issued 2025 EPS guidance of $26.00-$26.50 (down from $29.50-$30.00 previously). FactSet consensus is currently at $20.75, albeit with a wide range of estimates from $18 to $26.
  • If guidance appears significantly above consensus, shares could rally, while lower guidance could push shares down further.

Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.

This article was generated with the help of automation and reviewed by Morningstar editors. Learn more about Morningstar’s use of automation.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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