UnitedHealth Group Pulls Back Into Another Healthy Opportunity

Key Points

• UnitedHealth Group pulled back from a peak due to diminished revenue expectations, opening a healthy opportunity for long-term investors.
• The company is growing and producing healthy cash flow to sustain its robust capital return program.
• Analysts see it returning to recent highs and setting new highs by 2025's end. 

UnitedHealth Group NYSE: UNH stock price is pulling back from highs set last year, presenting a healthy opportunity for investors. Although the outlook for revenue growth has dimmed, the company continues to grow, cost controls offset the weakness, and capital return remains robust.

The stock price action may wallow in Q1 2025, but long-term trends remain intact for this and other healthcare services companies. This blue-chip health services operator’s stock price is trending higher over the long term and is likely to hit new highs before the end of the year. 

Mixed Results Highlight UnitedHealth’s Operational Quality 

UnitedHealth reported a mixed quarter, with revenue falling short of the consensus estimate for the first time in years. However, the slim 80 basis point miss is relative to a significantly reduced bar, with whisper figures expecting worse. The critical details are that revenue grew by nearly 7% year-over-year due to strength in all segments and revenue streams driven by increased patient counts. The core UnitedHealth business grew by 4.6%, led by a 9.4% gain in Optum. Last year’s hack still impacts Optum, but the damage is primarily in the rearview mirror and fading quickly. Regarding revenue streams, the company reports growth in premiums, products, and services, led by a double-digit product gain. 

The margin news is also mixed but favorable to shareholders. Margin contracted due to rising medical costs, but effective cost controls aided by AI-driven insights offset it. The net result is a 6% decline in earnings from operations, reduced cash flow, and $6.81 in adjusted earnings, which were still better than expected. The adjusted EPS outperformed by 100 basis points despite the top-line weakness, and margin performance is expected to remain solid. The company reaffirmed the guidance is set in December 2024, below the analysis forecasts but another year of growth and robust cash flow. 

The cash flow and balance show a neutral cash flow quarter due to investment and capital return. The takeaway is that the balance sheet remains healthy, with ample cash and a flat cash position despite increased receivables and short and long-term assets. Liability is also up. However, it is insufficient to offset the increased assets, leaving equity up by 4%. Dividends and repurchases are significant, with the dividend yielding over 1.55% in early January and buybacks reducing the diluted count by nearly a full percent in 2024.

Analysts Trends Support UNH Price Action 

The analysts' trends are positive for market sentiment, including increasing coverage and a high conviction in the Buy rating. MarketBeat tracks 22 analysts with current ratings in early 2025; 21 or 95% of them rate the stock as a Buy and only one as a Hold. The price target revision trend is also noteworthy, lifting the consensus estimate by 8% in 12 months and fresh targets leading to the high-end range. Consensus assumes this stock will retest its highs later this year, a 20% gain from critical support targets, while the high-end range adds 1000 basis points.  

The UNH price action is sketchy and suggests weakness could persist in Q1. The price action also shows solid support at critical levels, which indicates that the uptrend is still intact. Those levels align with the 150-week moving average and support levels in 2023 and 2024. It is likely a strong level and unlikely broken now. If so, this market could move down to retest the bottom of its trading range near $445 before rebounding. In that scenario, there is a risk that UNH stock will become range-bound with a ceiling near $555. The range bottom should be solid due to the high institutional interest and buying trends, but the ceiling may be just as solid. Institutional activity was bullish on balance in 2024 but shows selling when the stock price is up and support when it is down.