Adam Spatacco, The Motley Fool
4 min read
In This Article:
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UnitedHealth is going through a rough patch, underscored by decelerating earnings, management changes, and some bad publicity.
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Over the last month, its stock price has collapsed and now hovers around a five-year low.
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Recent commentary from management coupled with a flurry of insider buys suggest the business is still positioned well for the long run.
With shares down by more than 40%, UnitedHealth Group (NYSE: UNH) is the poorest-performing stock in the Dow Jones Industrial Average so far this year.
Over the last month or so, there has been no shortage of storylines surrounding America's largest health insurers. And if the share price movements are any indication, most of the news isn't great.
Let's dig into what has driven UnitedHealth stock off a cliff, and explore whether or not it remains a good buy for long-term investors.
A significant influence on a stock price, at least over the short term, is how a company's quarterly earnings are perceived. Generally speaking, if a company beats Wall Street estimates or raises its outlook, shares rise. On the other hand, if investors aren't impressed by the company's performance, they may choose to sell the stock.
During UnitedHealth's fourth-quarter and full-year 2024 earnings call in January, management issued earnings guidance of $28.15 to $28.65 per share.
Things took an unexpected turn when it reported first-quarter earnings on April 17. Management is now guiding in the range of $24.65 to $25.15 for earnings per share (EPS).
Two primary factors contributed to the downward revision. First, utilization rates from the company's Medicare Advantage businesses were higher than management was forecasting. These dynamics increase near-term costs, thereby stifling profitability.
Second, the company's Optum Health division -- which serves as a pharmacy benefits manager -- has been struggling on reimbursement due to a combination of cuts to Medicare as well as changes in insurance plans in certain market demographics.
Unfortunately for investors, UnitedHealth's drama didn't stop at the operational hiccups detailed above. About a month after the first-quarter earnings report, the company announced that CEO Andrew Witty had resigned.
If this weren't enough to get investors hitting the panic button, The Wall Street Journal followed up that news with a report that UnitedHealth was under investigation from the Department of Justice (DOJ) regarding fraudulent activity in Medicare billing.
