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On Friday, Raymond (NSE:RYMD) James maintained a Market Perform rating on UnitedHealth Group (NYSE:UNH) while adjusting its future earnings per share (EPS) estimates downward, joining 19 other analysts who have recently revised their earnings expectations downward according to InvestingPro data. The stock has declined significantly, dropping nearly 28% in the past week alone. The firm’s analyst cited concerns over the quality and recurrence of earnings after a detailed analysis of the company’s financials, specifically the one-time accounting gains reported in 2024.
The revised estimates include a decrease in the adjusted EPS for 2025 to $20 per share, down from the previous $22, and for 2026 to $23 per share, down from $25. This adjustment follows a recalibration of the 2024 EPS to $23.97 to exclude $4.0 billion in one-time gains that UnitedHealth booked in that year. These gains were attributed to strategic portfolio activities, including asset sales and investment income from unrealized gains on equity securities. Despite recent challenges, InvestingPro analysis shows UnitedHealth maintains strong fundamentals with a P/E ratio of 11.3x and robust free cash flow yield of 10%.
The $4 billion in gains were broken down as follows: $3.3 billion from strategic transactions, with $1.4 billion in Optum Health, $1.1 billion in UnitedHealthcare (UHC), and $800 million in Optum Insight, and $710 million from investment income related to fair value adjustments. The Raymond James analyst treated the $3.3 billion as a pre-tax item and the $710 million as an after-tax item, noting that these earnings are considered low-quality and non-recurring.
In their earnings forecast, the analyst made several key assumptions, including a rebase of 2024 EPS to remove the one-time gains, a projected 10% margin on fee-for-service revenue and a 0% margin on risk revenue for Optum Health in 2025, leading to an estimated EBIT of $4.5 billion. Additionally, they anticipate a roughly 2% year-over-year margin decline at UHC due to increased cost trends in Medicare Advantage (MA), and they expect Optum Insight and Optum Rx to perform within and slightly above prior guidance, respectively.
The report from Raymond James concludes that, beyond the macroeconomic headwinds, UnitedHealth’s narrative is now also focused on the quality and visibility of its earnings. According to InvestingPro, UnitedHealth maintains a "GOOD" overall financial health score, with particularly strong profitability metrics. Investors seeking deeper insights can access comprehensive analysis and 15 additional ProTips through InvestingPro’s detailed research reports, which cover over 1,400 US stocks including UNH.
In other recent news, UnitedHealth Group is under scrutiny as it faces a Department of Justice investigation for potential criminal Medicare fraud, specifically focusing on its Medicare Advantage billing practices. Despite this, Wolfe Research has maintained an Outperform rating with a price target of $501, indicating confidence in the company’s prospects. Meanwhile, RBC Capital Markets has adjusted its price target for UnitedHealth to $355, down from $525, due to revised earnings per share estimates and concerns over increased DOJ activity. JPMorgan has also revised its price target to $405, citing recent leadership changes and the suspension of 2025 guidance as contributing factors.
Cantor Fitzgerald continues to hold an Overweight rating on UnitedHealth, maintaining a price target of $440, emphasizing the company’s diverse portfolio and potential growth in the government insurance market. RBC Capital and JPMorgan both anticipate a recovery in UnitedHealth’s performance, with projections for earnings growth in the coming years. Analysts from these firms have adjusted their earnings estimates, reflecting expectations of improved margins and growth in the Medicare Advantage segment. Despite the ongoing investigation and market challenges, these firms express a positive long-term outlook for UnitedHealth Group.
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