UnitedHealth Group (NYSE:UNH) has had a rough time in the last year, with shares down nearly 60 percent on a combination of negative factors.
The business has become a lightning rod for criticism of the health insurance industry as a whole, so is it time to sell UNH, or is the stock primed for a rebound after selling off so dramatically over the last 12 months?
Why Is UNH Down So Much?
UnitedHealth has faced growing reputational damage over its claims practices and has attracted public criticism for alleged instances in which it denied valid claims.
The criticisms of UNH were thrust into the national spotlight late last year when former divisional CEO Brian Thompson was killed in New York City by an attacker who is believed to have been motivated by animosity against the health insurance industry and UnitedHealth in particular.
This damage extended to a series of lawsuits against the insurance giant. One such alleged deep flaws in the AI model one of UNH’s subsidiaries used to evaluate patient claims. The Department of Justice is also reportedly probing UnitedHealth’s handling of Medicare Advantage plans.
On a more mundane level, UnitedHealth faces similar issues to many other insurers in the forms of rising costs and pressure on margins.
American insurers may very well be staring down the barrel of long-term demographic challenges as the US population ages, potentially cementing higher healthcare costs and more frequent medical visits as permanent features of the industry.
Though health insurance will likely remain a deeply important part of America’s healthcare system, it may not be as attractive from a business perspective going forward as it historically has been.
UNH Seems Cheap, But Is It?
Due to the many difficulties the business itself is facing, UNH has sold off to a point where it could be attractively valued. Shares of the insurer trade for just 10.3 times earnings and 0.5 times sales.
For reference, that’s about as low as the stock’s P/E has been since the early 2010s. UNH has also sunk far below the range of stock prices most analysts expect from it. The average price target for UNH at the moment is $334.96, more than 40 percent above the most recent price of $244.67.
It’s important to keep in mind, however, that UnitedHealth is expecting a large reduction in its EPS in 2025. The trailing 12-month earnings that UNH’s P/E is currently calculated against totaled $23.08.
Using management’s own guidance of $14.65 per share this year, the stock would be trading at about 16.7 times this year’s earnings. While still under the sector’s average P/E of 23.7, this does temper some of the value argument in favor of UNH.
Does UnitedHealth Still Have Redeeming Qualities?
For all of the challenges it is facing, UNH remains an extremely large and competitive company within its industry. UnitedHealth is still the largest health and accident insurance provider in the US, followed closely by CVS Health and Cigna.
As such, the business likely still has a competitive advantage, though the reputational issues it has been facing could erode its market share over time.
UnitedHealth also appears set to win a merger with Amedisys that it has been trying to secure since 2023. While regulators delayed the deal, United finally seems to be on track to add the home health and hospice care provider to its stable of healthcare businesses.
This kind of merger has done quite well for UnitedHealth in the past, allowing it to pursue a vertically integrated approach to healthcare and insurance.
What About UnitedHealth’s Dividend?
Unsurprisingly, UnitedHealth’s dividend yield is also unusually high at the moment. Shares of UNH are yielding about 3.6 percent and offer a quarterly payout of $2.21. This is one area in which UnitedHealth may actually keep performing well, as the payout ratio is still under 40 percent.
With earnings expected to be significantly lower going forward, though, UnitedHealth may not be able to deliver the kind of dividend growth that has made it an attractive income stock in the past.
Is UNH a Sell?
In some ways, UNH still looks like it could be a decent stock to own. Between a low valuation, a high dividend yield and a significant moat within its industry, UNH has many of the characteristics investors would normally like to see in a stock. United is also still profitable, even if its earnings are expected to be lower going forward. In many cases, a stock like UNH could be a good candidate to buy on the dip.
With that said, a turnaround at UNH is likely to take quite some time, and the reputational and legal challenges the business faces don’t appear to be going away anytime soon.
Combined with the growing difficulties of the insurance business at large, these factors could make UNH too risky to be worth owning at the moment.
Of particular concern is the growing regulatory scrutiny UnitedHealth has drawn amid rising public criticism of its business practices. Even within the last few days, a group of Democratic senators has started an investigation into UnitedHealth’s practices regarding hospital visits for nursing home patients.
While individual investigations like this may not be major problems for United in the grand scheme of things, the sheer degree of legislative and regulatory opposition the business has earned could hamper its operations going forward.
While some risk-tolerant contrarians may find UNH appealing, the stock looks like it could be one to sell at the moment. Between weaker performance, deep misgivings among American consumers and a slew of potential legal difficulties, UnitedHealth looks like a business that may be going through more than just temporary bad times. While United will likely survive, the challenges facing it at the moment may make it unappealing for many investors today.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.