UnitedHealth Group Incorporated UNH is now trading 17% below its 52-week high, prompting some investors to consider it a buying opportunity. However, a deeper look is required before making a decision. The health insurance giant has fallen 11.3% over the past three months, underperforming both its industry peers in the Zacks Medical - HMOs industry and the broader S&P 500 Index. In comparison, Elevance Health, Inc. ELV has declined just 2.9%, while Humana Inc. HUM has slipped 6.5% over the same period.

3-Month Stock Performance – UNH, ELV, HUM, Industry & S&P 500

Image Source: Zacks Investment Research

From a valuation perspective, UNH appears expensive compared to its peers despite the stock’s decline. Its forward 12-month price-to-earnings ratio is currently 17.44X compared to the industry average of 14.85X, suggesting the stock is still trading at a premium. Meanwhile, Elevance is currently trading at a P/E ratio of 11.14X, while Humana is at 15.77X.

Image Source: Zacks Investment Research

UnitedHealth’s Headwinds

UnitedHealth stock has faced persistent pressure since the tragic shooting of top CEO Brian Thompson in December, at one point erasing nearly $100 billion in market capitalization. The incident, combined with growing public criticism of the health insurance industry and online backlash, has placed the company under heightened scrutiny.

Adding to its challenges, rising medical costs continue to weigh on profitability. In the fourth quarter, medical expenses surged to $67 billion, up from $62.2 billion a year earlier, while its medical care ratio (MCR) deteriorated to 85.5% in 2024 from 83.2% in 2023. A higher MCR means the company is retaining a smaller portion of premiums after paying claims, further straining margins. One key driver of these rising costs is the persistently high price of drugs in the United States, which remains significantly above global levels.

Beyond financial pressures, regulatory risks loom large. Lawmakers continue to push for healthcare reform, with some advocating for the breakup of large pharmacy benefit managers (PBMs) like UnitedHealth’s OptumRx, which negotiate drug prices on behalf of insurers. Meanwhile, President Donald Trump has kept a focus on eliminating "middlemen" in the drug supply chain, signaling potential policy shifts that could impact industry profits.

While UnitedHealth is pushing for a more efficient and cost-effective healthcare system, ongoing regulatory uncertainty and mounting cost pressures could keep the stock under pressure in the near term.

Declining Earnings Estimates for UnitedHealth

Adding to investor concerns, earnings estimates for UnitedHealth have been revised downward. Projections for 2025 EPS have dropped by 0.8% over the past month to $29.54, while 2026 estimates fell by 0.5% in the same period to $33.22. This downward trend raises concerns about UNH’s growth potential and suggests that its challenges are far from over.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

Image Source: Zacks Investment Research

How Should You Play UnitedHealth Stock?

While the current headwinds may deter new investors from buying at these levels, existing shareholders may find it wise to hold onto their positions.

UnitedHealth is taking strategic steps to manage costs, including efforts to reduce inpatient stays and facilitate safer, more efficient discharges. The company’s focus on contract negotiations is also expected to help control expenses more effectively while tackling financial pressures.

Additionally, UnitedHealth is making significant investments in AI and digital tools to enhance consumer experiences and streamline healthcare processes, which could drive long-term efficiency and cost savings. Optum Health, a key growth driver, is projected to serve 5.4 million value-based care patients this year, a 650,000 increase from last year.

Despite short-term challenges, UnitedHealth remains well-positioned to capitalize on rising healthcare spending in the United States, driven by an aging population and increasing disease prevalence. Its scale, market expansions and diversification efforts should help mitigate margin pressures from slower private Medicare rate growth. As such, for long-term investors, holding onto the stock remains a prudent choice.

The company also maintains a strong track record of shareholder returns. In 2024, UnitedHealth rewarded shareholders with over $16 billion in share repurchases and dividends, and its long-term earnings potential suggests further dividend growth ahead.

The stock currently trades well below the Wall Street average price target of $639.21, suggesting a 22.10% upside from current levels.

UNH Wall Street Price Target

Image Source: Zacks Investment Research

UnitedHealth currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

UnitedHealth Group Incorporated (UNH) : Free Stock Analysis Report

Humana Inc. (HUM) : Free Stock Analysis Report

Elevance Health, Inc. (ELV) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research