UnitedHealth Group (UNH) is expected to have "line of sight to recovery" in 2026 and beyond after the health care company recently cut its 2025 earnings per share outlook, Morgan Stanley analysts said in a Tuesday note.
The company lowered its 2025 earnings per share guidance by 12% due to higher-than-expected utilization in group Medicare advantage and complications related to the v28 risk adjustment model in Optum Health, the analysts said.
Roughly two-thirds of the EPS guidance cut came from Optum Health as the unit is struggling with adapting to the new v28 risk adjustment model and absorbing members from exiting plans with weak coding, according to the note.
The investment firm said that beneficiaries responded to premium increases by accessing more care, especially in outpatient services, and this dynamic has hurt profitability but can be factored into future pricing strategies.
Morgan Stanley said that while UnitedHealth's issues have affected the broader managed care organization sector, it expects "less controversial prints" from peers such as Elevance Health (ELV) and CVS Health (CVS).
The firm reduced its price target to $563 from $664 and kept an overweight rating on the stock.
Price: 429.35, Change: +4.02, Percent Change: +0.95
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