UnitedHealth Earnings: Reinstated 2025 Guidance Underwhelms

Key Morningstar Metrics for UnitedHealth Group

• Fair Value Estimate: $400.00
• Morningstar Rating: ★★★★
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: High

What We Thought of UnitedHealth Group’s Earnings

In the second quarter, UnitedHealth Group UNH delivered 13% revenue growth, but adjusted EPS declined 40%, as its medical insurer and value-based caregiver absorbed elevated medical costs. To reflect this dynamic, UnitedHealth reinstated 2025 guidance at lower levels, including at least $16 of adjusted EPS.

Why it matters: Shares fell about 5% in early trading on this weak outlook, which was lower than we were expecting and roughly half of the firm’s original outlook for the year of $29.50-$30.00. This is also well below its previously withdrawn outlook of $26.00-$26.50, given in April.

• Medical utilization outpaced pricing in the second quarter, causing medical insurance operating margins to decline to 2.4% from 5.4% a year ago. Optum Health’s operating margin also declined to 2.5% from 7.1% a year ago, as its risk-taking caregiver operations absorbed higher medical costs.
• Overall, these results highlighted how elevated medical utilization trends are wreaking havoc on managed care margins. MCOs like UnitedHealth need to figure out how to boost future pricing on their offerings to fully reflect these elevated costs, despite the intense regulatory environment.

The bottom line: We are lowering our fair value estimate to $400 per share from $473 to recognize the firm’s weaker intermediate-term profit prospects due to elevated medical utilization, which may take some time to offset from a pricing perspective, especially in government-sponsored programs.

• Our narrow moat rating for UnitedHealth has not changed, and it looks likely to remain a top-tier managed care organization on an economic profitability basis, with significant margin for executional error like we are seeing, currently.
• However, investors should be aware of the elevated uncertainty rating around future cash flows and the share volatility that may arise, given ongoing challenges at UnitedHealth, including rising scrutiny on its Medicare Advantage business.