Our Prognosis on UnitedHealth Group after its Stock Fell 50%

Last spring, shares of UnitedHealth Group (UNH) lost over half their value. The stock even dropped 18% on May 13, its worst single-day plunge since September 2008.

With over 50 million people enrolled, UNH is the largest health insurance provider in the United States. Because customers have used their medical benefits at twice the expected rate this year, the company will spend an additional $6.5 billion compared to initial projections. 

Given that we look for stocks out of favour, UNH isn’t a company we’ve ever bought. It rarely stumbles. In fact, you have to go back to 2008 to find a year when their earnings hadn’t grown compared to the year before. Meanwhile, it’s been shareholder-friendly by increasing its dividend and buying back their own shares for years.

We bought the stock for clients for four solid reasons.

Former CEO Returning

First, on May 13, the board rehired its former CEO, Stephen Hemsley, who had led the company from 2006 to 2017. Immediately after rejoining, Hemsley purchased $25 million of stock. In addition, his pay package includes a $1 million salary and a significant $60 million one-time equity award that will vest only after three years. So we know he’ll be sticking around.

Prices will Adjust

Second, there is a credible plan to turn things around. Because premium rates are adjusted annually to align with medical costs, these rates will surely go up in 2026. Meanwhile, UNH will discontinue unprofitable products and use AI to better manage and predict future healthcare expenses.

Stock Valuation

Third, its valuation at the time looked very cheap compared to its historical average. However, in Hemsley’s first earnings call on July 29, he guided for $16 in earnings per share this year, which was significantly lower than even the most bearish analyst estimate. 

This gives the stock a 21x valuation multiple for 2025 earnings. To put that into context, it historically trades at only 17x earnings. In other words, the stock wasn’t quite the bargain it appeared to be when we first bought it.

While this tempers our initial thesis, we still expect earnings to grow by double-digits in 2026 and 2027. New CEOs often set conservative targets they can easily surpass, so the $16 earnings per share guidance could be a low estimate. We’ll have to wait for future quarterly earnings reports to see if that’s true.

Investor Sentiment

Fourth, sentiment couldn’t have been worse. Through experience, it’s best to buy a stock when it’s out of favour as opposed to when everyone is rushing to purchase shares. We’ve been following this same process for years, and we look to see if the problem can be resolved or if it represents an existential threat before making a new investment for clients. 

Our Purchase Details

We purchased the Canadian Depository Receipt, which hedges our currency volatility, on May 20, but the American-listed UNH traded between $312.58 and $324.64 on that day. 

Admittedly, we were early on this one. It continued to fall, even breaching below $250 at one point in August.

Warren Buffett an Investor

Then, Warren Buffett’s Berkshire Hathaway disclosed in a regulatory filing that it invested almost $1.6 billion in the stock, buying over 5 million shares for a cost of $311.97 in the second quarter of 2025 (which implies some point between April 1 and June 30). The stock jumped 12% the next day. We invested before knowing Buffett was involved. While his decision didn’t drive ours, his name often attracts additional investors, which helped lift the stock.

Today, the stock trades at about $350 per share.

While the coming quarters will reveal whether UNH’s guidance is too conservative, shareholders should be very confident with the person now running the company. If earnings growth resumes more sharply than the market expects, today’s stock price could prove an excellent entry point for long-term investors.

-written by Jeff Pollock