Angel Adegbesan
Updated 6 min read
In This Article:
(Bloomberg) — When CFRA’s Paige Meyer slapped a “sell” rating on UnitedHealth (UNH) Group Inc. in February, she was the lone analyst out of 30 tracked by Bloomberg with a negative view of the company.
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Meyer’s price target implying a 22% fall for the shares glared in a sea of optimistic forecasts, while her warnings on regulatory uncertainty and high medical expenses seemed almost alarmist. The health insurance giant was, after all, an industry bellwether that was widely considered a safe bet by Wall Street, even as it faced rising costs and was recovering from the murder of a top executive last year.
Today, Meyer’s outlook has proved more prescient than she could have imagined. UnitedHealth’s stock has plunged about 36% since her downgrade to Tuesday’s close, losing more than $170 billion in market value and notching a spot as the worst performer in the S&P 500 Index during that period. The tumble came as the company cut — then suspended — its annual forecast, replaced its chief executive officer and is now reportedly facing a criminal investigation for possible Medicare fraud.
“I feel fortunate that I had the courage to make that call,” Meyer said in an interview. “It’s hard to go against the grain.”
More bad news continues to pile up for UnitedHealth. The Guardian reported Wednesday that the insurer secretly paid nursing homes bonuses to cut hospital transfers for sick residents, as part of a series of cost-cutting tactics. Prior to that, HSBC cut the stock to a sell-equivalent rating, becoming the second analyst tracked by Bloomberg to do so. UnitedHealth shares tumbled as much as 6.7% on Wednesday.
The crisis at UnitedHealth is resurfacing an issue that has long plagued Wall Street: The overwhelmingly positive views analysts hold on America’s biggest corporations. Data compiled by Bloomberg show that nearly 60% of ratings on S&P 500 companies are “buys,” and only 5% are “sells.” UnitedHealth was an extreme example of the trend when Meyer slashed her rating, sporting the highest ratio of “buys,” at 97%.
Some of the reasons behind those bullish outlooks have little to do with company fundamentals, market participants said. Analysts may hesitate to be overly critical of a company for fear of hurting their relationship with management, which can mean less face time with executives, said Rhys Williams, chief strategist at Wayve Capital Management LLC and a nearly four-decade veteran of Wall Street.
