UnitedHealth: Shares Dive on Wall Street Journal Report of Criminal Probe in Medicare Advantage

Key Morningstar Metrics for UnitedHealth Group

• Fair Value Estimate: $530.00
• Morningstar Rating: ★★★★
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: High

The Wall Street Journal reported on May 14 that a criminal component had been added to an already-reported civil investigation of UnitedHealth Group’s UNH risk-rating practices in Medicare Advantage. UnitedHealth later responded that it had not been notified of the criminal probe.

Why it matters: After the media report but before UnitedHealth’s rebuttal, shares were down another 8% in after-hours trading, crashing further in a dismal week for investors that already saw the company’s CEO leave and its 2025 guidance suspended.

• The potential for Medicare fraud at the largest Medicare Advantage insurer is spooking investors, and if wrongdoing is eventually found, the monetary damages could be stiff. Previous assertions under Andrew Witty that risk assessments would solve its current profit challenges look dubious.
• The diversity of UnitedHealth’s operations should shield it somewhat. About half of profits come from medical insurance, and only about 15% of its global medical membership comes from Medicare Advantage, which looks disproportionately low relative to recent share movement.

The bottom line: After raising our Uncertainty Rating to High following the management and guidance announcement earlier this week, we are making no further changes to our views of narrow-moat UnitedHealth.

• Positively, UnitedHealth maintains a conservative balance sheet, including gross debt/EBITDA of roughly 2 times and credit ratings in the single-A category. Financially, we suspect the company should be able to ride out gathering storms.
• Shares appear significantly undervalued to us at these levels, but investors should be aware of the elevated uncertainty and potential for share volatility, especially given ongoing regulatory challenges broadly for the industry and specifically for UnitedHealth.

Bears say: UnitedHealth shares have fallen by half in just a month, and current prices imply a further deterioration of profits representing nearly half of its medical insurance operations in the near term.