TSX runs higher on rate cut expectations
On Tuesday, KeyBanc Capital Markets maintained its positive stance on UnitedHealth Group (NYSE:UNH) shares, reiterating an Overweight rating and a $650.00 price target. The healthcare giant, with a market capitalization of $480 billion and annual revenue exceeding $400 billion, maintains a "GREAT" financial health score according to InvestingPro analysis. The firm's analyst highlighted the finalized Medicare Advantage (MA) rates for 2026, which exceeded expectations and could lead to margin improvements for MA plans next year.
The Centers for Medicare and Medicaid Services (CMS) finalized the MA rates at a 5.06% increase compared to the 2.23% initially proposed. This adjustment is significantly higher than the 50 to 100 basis points investors had anticipated. According to KeyBanc's analysis, this favorable rate adjustment suggests the beginning of a positive underwriting cycle for the MA industry. The timing is particularly interesting as UnitedHealth approaches its next earnings report on April 17, with analysts maintaining a strong bullish consensus on the stock.
UnitedHealth Group, alongside Alignment Healthcare, is considered by KeyBanc to be in a strong position to benefit from these enhanced rates. Despite uncertainties surrounding Humana (NYSE:HUM)'s Star ratings, the latter is expected to see a notable increase in its shares due to the rate announcement, as it is currently under-earning compared to its peers.
The $650 price target set by KeyBanc for UnitedHealth Group corresponds to 19 times the firm's estimated earnings per share (EPS) for 2026. This valuation is consistent with the three-year average price-to-earnings (P/E) ratios for the company, which range from 18 to 22 times. At present, UnitedHealth's shares are trading at approximately 18 times the next twelve months' (NTM) EPS, aligning with historical trading ranges. The company has demonstrated strong shareholder returns, maintaining dividend payments for 33 consecutive years with a current yield of 1.6%. According to InvestingPro, which offers comprehensive analysis of 1,400+ US stocks, UnitedHealth appears slightly overvalued at current levels, though its strong financial metrics and consistent dividend growth suggest long-term stability.
In other recent news, the Centers for Medicare and Medicaid Services announced a 5.06% increase in Medicare insurer payment rates for 2026, surpassing initial projections and expected to generate over $25 billion in additional revenue for the industry. This development has positively impacted companies like CVS Health (NYSE:CVS), UnitedHealth Group, and Humana, as it represents a significant boost in revenue potential. Meanwhile, the U.S. Federal Trade Commission's lawsuit against pharmacy benefit managers, including CVS Health's CVS Caremark and UnitedHealth Group's Optum, is set to resume. This case involves allegations of unfair insulin pricing practices.
Cantor Fitzgerald has reiterated its Overweight rating on UnitedHealth Group, maintaining a price target of $700, with expectations that the company may surpass its 2025 guidance. The firm highlights that UnitedHealth's conservative approach to its medical loss ratio could lead to better-than-expected performance in upcoming quarters. Additionally, Cantor Fitzgerald views Centene (NYSE:CNC) Corporation and Molina Healthcare (NYSE:MOH) as undervalued amid policy fears, noting that the market may have overly discounted these stocks due to potential legislative changes under the Trump administration.
In a separate legal matter, the U.S. Attorney General has directed prosecutors to seek the death penalty for Luigi Mangione, accused of murdering a UnitedHealthcare executive. These recent developments highlight ongoing regulatory, legal, and financial dynamics impacting major healthcare companies.
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