We use cookies to understand how you use our site and to improve your experience.
This includes personalizing content and advertising.
By pressing "Accept All" or closing out of this banner, you consent to the use of all cookies and similar technologies and the sharing of information they collect with third parties.
You can reject marketing cookies by pressing "Deny Optional," but we still use essential, performance, and functional cookies.
In addition, whether you "Accept All," Deny Optional," click the X or otherwise continue to use the site, you accept our Privacy Policy and Terms of Service, revised from time to time.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Buy, Hold, or Fade the Recent Rally in UnitedHealth Group (UNH) Stock?
Read MoreHide Full Article
UnitedHealth Group (UNH - Free Report) stock is still down 40% year to date but has surged more than +20% this month following reports that Warren Buffett’s Berkshire Hathaway (BRK.B - Free Report) and other billionaire hedge fund managers have taken a stake in the company, including David Tepper’s Appaloosa Management.
In a classic value investing move, Buffett undoubtedly sees long-term value in UnitedHealth Group as a high-quality business at a steep discount, investing in other industry leaders during a crisis like Goldman Sachs (GS - Free Report) during the 2008 financial meltdown and more recently Occidental Petroleum (OXY - Free Report) during the Covid-19 pandemic plunge in energy prices.
To that point, UnitedHealth has faced a DOJ investigation stemming from its health services and technology subsidiary Optum, and had previously suspended its full-year financial guidance due to unexpectedly high medical costs.
Considering such, investors may be weighing the pros and cons of investing in UNH, with some wondering if it’s time to fade the recent rally.
As the parent company of United Healthcare, the nation's largest insurer, UnitedHealth Group stock had recently fallen toward its decade low in terms of price to forward earnings and is still on par with its 10-year foward P/E median of 18X.
Image Source: Zacks Investment Research
Furthermore, UNH trades at less than 1X sales and has the scale, diversification, and cash flow that are likely attracting Buffett and other large investors to believe in its long-term recovery. Notably, UnitedHealth Group has more than $32 billion in cash and equivalents on hand and over $308 billion in total assets compared to $208.1 billion in total liabilities.
Image Source: Zacks Investment Research
UNH EPS Revisions
Despite reinstating its guidance, UnitedHealth Group now expects full-year fiscal 2025 EPS to be considerably lower at a least $16 per share, with the Zacks Consensus currently at $16.58 and falling 25% over the last 60 days from expectations of $22.28.
While the drop in FY25 EPS estimates was expected, what may be more concerning to investors is that FY26 EPS estimates have dropped nearly 30% in the last two months from projections of $25.58 to $18.08.
Image Source: Zacks Investment Research
Conclusion & Final Thoughts
The institutional pile into UnitedHealth Group stock may have set a psychological floor for investors, but the trend of declining EPS revisions does take away from the company's enticing valuation and suggests there could still be much better buying opportunities ahead. Correlating with such, it may be time to fade the recent rally, with UNH landing a Zacks Rank #5 (Strong Sell) at the moment.
For investors who may be interested in limiting the short-term risk associated with the recent volatility in UnitedHealth Group stock, Zacks analyst Sanghamitra Saha has alluded to the notion that the iShares U.S. Healthcare Providers ETF (IHF - Free Report) could be a better way to get exposure to UNH.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Buy, Hold, or Fade the Recent Rally in UnitedHealth Group (UNH) Stock?
UnitedHealth Group (UNH - Free Report) stock is still down 40% year to date but has surged more than +20% this month following reports that Warren Buffett’s Berkshire Hathaway (BRK.B - Free Report) and other billionaire hedge fund managers have taken a stake in the company, including David Tepper’s Appaloosa Management.
In a classic value investing move, Buffett undoubtedly sees long-term value in UnitedHealth Group as a high-quality business at a steep discount, investing in other industry leaders during a crisis like Goldman Sachs (GS - Free Report) during the 2008 financial meltdown and more recently Occidental Petroleum (OXY - Free Report) during the Covid-19 pandemic plunge in energy prices.
To that point, UnitedHealth has faced a DOJ investigation stemming from its health services and technology subsidiary Optum, and had previously suspended its full-year financial guidance due to unexpectedly high medical costs.
Considering such, investors may be weighing the pros and cons of investing in UNH, with some wondering if it’s time to fade the recent rally.
UnitedHealth’s Attractive Valuation & Balance Sheet
As the parent company of United Healthcare, the nation's largest insurer, UnitedHealth Group stock had recently fallen toward its decade low in terms of price to forward earnings and is still on par with its 10-year foward P/E median of 18X.
Image Source: Zacks Investment Research
Furthermore, UNH trades at less than 1X sales and has the scale, diversification, and cash flow that are likely attracting Buffett and other large investors to believe in its long-term recovery. Notably, UnitedHealth Group has more than $32 billion in cash and equivalents on hand and over $308 billion in total assets compared to $208.1 billion in total liabilities.
Image Source: Zacks Investment Research
UNH EPS Revisions
Despite reinstating its guidance, UnitedHealth Group now expects full-year fiscal 2025 EPS to be considerably lower at a least $16 per share, with the Zacks Consensus currently at $16.58 and falling 25% over the last 60 days from expectations of $22.28.
While the drop in FY25 EPS estimates was expected, what may be more concerning to investors is that FY26 EPS estimates have dropped nearly 30% in the last two months from projections of $25.58 to $18.08.
Image Source: Zacks Investment Research
Conclusion & Final Thoughts
The institutional pile into UnitedHealth Group stock may have set a psychological floor for investors, but the trend of declining EPS revisions does take away from the company's enticing valuation and suggests there could still be much better buying opportunities ahead. Correlating with such, it may be time to fade the recent rally, with UNH landing a Zacks Rank #5 (Strong Sell) at the moment.
For investors who may be interested in limiting the short-term risk associated with the recent volatility in UnitedHealth Group stock, Zacks analyst Sanghamitra Saha has alluded to the notion that the iShares U.S. Healthcare Providers ETF (IHF - Free Report) could be a better way to get exposure to UNH.