UnitedHealth's stock can soar 40% as antitrust concerns are overblown, BofA says

By Tomi Kilgore

Justice Department antitrust probe and recent cyberattack were bad news for UnitedHealth - but not as bad as stock's selloff suggests, analyst says

Shares of UnitedHealth Group Inc. rallied Thursday after a ringing endorsement from BofA Securities analyst Kevin Fischbeck, who said investor concerns about an antitrust investigation and a recent cyberattack are way overblown.

Fischbeck reiterated his buy rating on the health insurer's stock (UNH), which he said is now his "top pick."

His $675 price target - which makes Fischbeck the most bullish of the 28 analysts surveyed by FactSet who cover UnitedHealth - implies roughly 41% upside from current levels.

The stock rose 0.9% in afternoon trading, after closing Wednesday at its lowest price since July 13, 2023.

The bounce comes after UnitedHealth shares tumbled 10.4% amid an eight-session losing streak, which was their longest such streak since an eight-day stretch that ended March 27, 2017.

The selloff was highlighted by the combined 5.1% drop on Feb. 27 and Feb. 28, after the Wall Street Journal reported that the U.S. Department of Justice had launched an antitrust investigation into the company, amid concerns over certain relationships between the its UnitedHealthcare insurance unit and its Optum health-services business.

Also, it was revealed that UnitedHealth's Change Healthcare unit fell victim to a cyberattack in late February.

"Although neither piece of news is welcome, the magnitude of the [stock's] selloff far outweighs the likely impacts, in our view," BofA's Fischbeck wrote in a note to clients.

Regarding the DOJ probe, Fischbeck said he did not view it as a surprise given the increased regulatory scrutiny recently around healthcare-services companies.

"We see no grounds for a breakup, and note that recent [UnitedHealth] deals have been well scrutinized by the government before being approved (or approved by the courts)," Fischbeck wrote. "As a result, we see the most likely worst case as being larger deals being more difficult to complete (although that was already the default assumption)."

Regarding the cyberattack, Fischbeck noted that Change Healthcare represented "just a faction" of UnitedHealth's overall earnings - about 2% of earnings per share - so it is "very unlikely" that the issue will hurt the company's results.

UnitedHealth's stock has dropped 9.4% this year to date, while the Health Care Select Sector SPDR ETF XLV has gained 7.6% and the Dow Jones Industrial Average DJIA has tacked on 2.9% over that span.

-Tomi Kilgore

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03-07-24 1506ET

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