Major healthcare plan provider UnitedHealth Group Incorporated UNH is currently viewed as expensive, with the stock trading at a 16.61X forward 12-month Price/Earnings (P/E), which is at a premium compared with the Zacks Medical – HMOs industry average of 14.47X. This valuation generally reflects the market’s strong confidence in the company's future prospects. UnitedHealth has a Value Score of B at present.

However, it is important to closely evaluate whether this elevated price is justified based on its growth prospects, fundamentals and prevailing market conditions. UNH is still trading below its five-year median of 19.19X. Meanwhile, other health insurers, such as Humana Inc. HUM and Elevance Health, Inc. ELV, are currently trading at 17.21X and 12.41X, respectively.

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UnitedHealth’s Price Performance

Over the past six months, UNH shares have dropped 12.3%, slightly outperforming the industry’s 12.8% decline but lagging the S&P 500’s 0.2% dip. In comparison, Humana and Elevance have slipped 14% and 19.1%, respectively, over the same period.

6-Month Price Performance – UNH, HUM, ELV, Industry & S&P 500

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Headwinds Facing UnitedHealth

UnitedHealth stock has been under pressure since the tragic December shooting of top executive Brian Thompson, wiping out nearly $100 billion in market value at one point. The company is also facing heightened scrutiny amid growing public criticism of the health insurance industry.

Adding to its headaches, increasing medical costs continue to erode margins. In the fourth quarter, medical expenses climbed to $67 billion from $62.2 billion a year earlier. Its 2024 medical care ratio (MCR) increased to 85.5% from 83.2% in 2023. A higher MCR means the company is retaining a smaller portion of premiums after paying claims. Elevated drug prices in the United States remain a key driver of rising costs.

Regulatory risks are also mounting. Lawmakers continue to push for healthcare reforms, with some advocating for the breakup of large pharmacy benefit managers like UnitedHealth’s OptumRx, which negotiate drug prices on behalf of the insurers. President Donald Trump has vowed to eliminate "middlemen" in the drug supply chain. These uncertainties could impact UnitedHealth’s long-term profitability.

UnitedHealth’s Growth Drivers

Despite these challenges, Eden Prairie, MN-based UNH is actively managing costs through contract negotiations and improved patient discharge processes. Investments in AI and digital healthcare solutions aim to enhance efficiency and reduce expenses.

Optum Health, a key growth driver, is set to serve 5.4 million value-based care patients this year, an increase of 650,000 from 2023. UnitedHealth remains well-positioned to capitalize on rising healthcare spending in the United States, driven by an aging population and growing disease prevalence. Its scale, market expansions and diversification efforts should help mitigate margin pressures from slower private Medicare rate growth.

The company also maintains a strong track record of shareholder returns. In 2024, UnitedHealth rewarded shareholders with more than $16 billion in share repurchases and dividends, and its long-term earnings potential suggests further dividend growth ahead. Its dividend yield of 1.67% is higher than the industry average of 1.57%.

Additionally, its total debt-to-capital of 42.41% is lower than the industry average of 43.74%. It exited the fourth quarter of 2024 with cash and short-term investments of $29.1 billion, which can easily manage its short-term borrowings and the current portion of long-term debt of $4.6 billion.

UNH’s Estimates & Surprise History

The Zacks Consensus Estimate for UnitedHealth’s 2025 and 2026 EPS implies a 6.8% and 12.5% uptick, respectively, on a year-over-year basis. The estimates remained stable over the past month. Moreover, the consensus mark for 2025 and 2026 revenues suggests a 12.7% and 8% increase, respectively. UnitedHealth has beaten earnings expectations for four straight quarters, with an average surprise of 2.5%.

See the Zacks Earnings Calendar to stay ahead of market-making news.

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UnitedHealth’s Price Target

Based on short-term price targets offered by 24 analysts, the Wall Street average price target is at $637.13 per share, suggesting a 27.68% upside from current levels.

UNH Wall Street Price Target

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Verdict: Is UnitedHealth Stock a Buy, Hold, or Sell?

While UNH and the broader industry are facing regulatory uncertainties and growing medical costs, the company’s long-term prospects remain strong, supporting its above-industry-average price tag. While the current headwinds may deter new investors from buying at these levels, existing shareholders may find it worth holding.

Overall, the outlook is largely neutral for UnitedHealth shares at present. It currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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