UnitedHealth Earnings: Medical Utilization and Regulatory Challenges Cut Into Outlook

Key Morningstar Metrics for UnitedHealth Group

• Fair Value Estimate: $550.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Medium

What We Thought of UnitedHealth Group’s Earnings

UnitedHealth Group UNH turned in solid third-quarter results, largely absorbing challenges with medical utilization and the Change Healthcare network outage. However, management slightly reduced the top end of its 2024 guidance range and gave a weaker-than-expected initial view for 2025, disappointing investors. After tinkering with our near-term estimates, we maintain our fair value estimate of $550 per share. The stock appears fairly valued.

UnitedHealth reported solid 9% revenue and 9% adjusted earnings per share growth in the quarter, reflecting higher profits in its Optum Health caregiving services (38% growth) and Optum Rx pharmacy benefit management services (23%). This offset an 8% operating profit decline in medical insurance related to surging medical utilization and a 6% decline at Optum Insight related to the Change outage.

In medical insurance, management highlighted a mismatch in elevated medical utilization and weak rates in key government-sponsored programs. Medicaid eligibility redeterminations have largely concluded, and that headwind should subside eventually as states adjust their rates on the remaining, riskier population. However, Medicare Advantage pressures look likely to continue, considering the recently announced weakness in star ratings and continued adjustments on risk-adjusted rates relative to traditional Medicare expected through 2026.

Management narrowed its 2024 adjusted EPS forecast to $27.50-$27.75 from $27.50-$28.00, cutting the top end of the range as the firm absorbs $0.75 per share of Change-related business disruption effects. That outlook reflects only 9%-10% growth, well below UnitedHealth’s 13%-16% long-term goal. Management said similar earnings growth in the mid-to-high single digits may be likely in 2025 too, as the medical insurance arm faces continued headwinds related to Medicaid redeterminations, Medicare Advantage constraints, and elevated medical utilization.