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On Tuesday, Bernstein analysts pointed out UnitedHealth Group (NYSE:UNH), a healthcare giant with a $456 billion market cap and 7.7% revenue growth in the last twelve months, and Agilon Health (NYSE:AGL) as key players in the value-based care (VBC) sector, which is anticipated to undergo a significant turnaround. The sector has faced challenges in recent years, leading to a decline in profitability. However, analysts believe 2025 marks a pivotal year, with some headwinds beginning to subside, setting the stage for a stronger 2026 and beyond.According to InvestingPro data, UnitedHealth maintains a "GREAT" financial health score, with 12 additional exclusive ProTips available for subscribers looking to dive deeper into the company’s fundamentals.
Analysts cited three main factors that have previously hindered the sector: higher-than-expected medical costs, deteriorating Medicare Advantage (MA) margins, and rapid growth in new members that did not translate into expected performance. This has resulted in disappointing stock performances since their initial public offerings, with AGL down approximately 80%, Alignment Healthcare (NASDAQ:ALHC) down around 10%, and Privia Health (NASDAQ:PRVA) remaining roughly flat.
The forecast for the VBC sector is optimistic, with expectations of a multi-year recovery driven by improving MA margins, a slowdown in medical cost growth, and a more disciplined approach to new member growth. Analysts predict that these factors will lead to better fundamentals in the sector throughout 2025 and a stronger position entering 2026.
Bernstein analysts also highlighted the long-term potential of the VBC sector, with the market size expected to grow significantly from current levels. They anticipate a rise in mergers and acquisitions as confidence in the sector is restored. By 2040, the VBC adoption in MA is projected to reach approximately 80%, representing a potential market opportunity of $100-135 billion in profit, compared to the current $6-8 billion.For investors seeking comprehensive analysis of UnitedHealth and similar healthcare companies, InvestingPro offers detailed research reports with expert insights and over 30 key financial metrics.
UnitedHealth Group, with an ’Outperform’ rating, is recognized as the leading company in the VBC space, expected to have around 5.4 million members in 2025. The stock is currently trading at a 20% discount to the S&P 500 index, making it an attractive option for investors looking to capitalize on the VBC market recovery. Agilon Health, while currently rated ’Market-Perform’ due to some unique risks, is also expected to benefit from the improving macro trends. Other companies such as Elevance Health (NYSE:ELV), CVS Health (NYSE:CVS), and Humana (NYSE:HUM) are growing their VBC businesses, but their impact on earnings per share is considered less significant compared to UNH and AGL.
In other recent news, UnitedHealth Group has been involved in several significant developments. Vertex Pharmaceuticals (NASDAQ:VRTX)’ non-opioid pain medication, Journavx, has been included in UnitedHealth’s coverage but is placed in a higher-cost tier, indicating it may be more expensive for patients compared to other treatments. Additionally, Deutsche Bank (ETR:DBKGn) analysts have maintained a Buy rating on UnitedHealth shares, following a recommendation to dismiss a longstanding Department of Justice lawsuit accusing the company of overbilling Medicare. The lawsuit’s potential dismissal could relieve UnitedHealth of significant legal burdens.
In another analyst update, Piper Sandler has reiterated an Overweight rating on UnitedHealth, maintaining a $600 price target. This comes amid market concerns regarding risk adjustment coding in Medicare Advantage plans, which the firm believes are overstated. Meanwhile, UnitedHealth is under scrutiny by the Senate Judiciary Committee, led by Sen. Chuck Grassley, for its Medicare billing practices, with allegations of fraud and waste being investigated.
UnitedHealth has responded by defending its practices and expressing readiness to provide information to the Senate Committee. The company has also contested claims of fraudulent practices, emphasizing its ethical standards and performance in audits. These developments highlight ongoing challenges and opportunities for UnitedHealth as it navigates legal and regulatory landscapes.
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