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On Thursday, Raymond (NSE:RYMD) James reiterated a Strong Buy rating and a $635.00 price target on UnitedHealth Group (NYSE:UNH) shares, which currently trade at $596.34. The firm's analyst highlighted expectations of modest upside to the company's first-quarter 2025 earnings, set to be reported on April 17, 2025. According to InvestingPro data, analyst consensus is strongly bullish with targets ranging from $518.76 to $700.00. The analyst's commentary suggests that current Medical (TASE:BLWV) Loss Ratio (MLR) estimates might not fully account for changes in Part D seasonality for the year. While CVS indicated an 800 basis point swing in MLR from the first to the fourth quarter due to these timing changes, estimates for UnitedHealth are only reflecting a 140 basis point swing, despite a similar business mix.
The analyst believes that while full-year estimates and guidance are likely to remain consistent, the first-quarter MLR may need to be adjusted downward, with a potential increase in the fourth-quarter MLR estimates. UnitedHealth has not provided specific commentary on MLR seasonality, other than indicating the first-quarter MLR will be below the midpoint of guidance. As a prominent player in the Healthcare Providers & Services industry, UnitedHealth maintains strong financial health, earning a "GREAT" overall score from InvestingPro's comprehensive analysis framework. This leads to the expectation that first-quarter estimates may not have been finely tuned, suggesting some potential for earnings to exceed estimates.
The analyst also pointed out that UnitedHealth might be building reserves in the first half of the year, as it is suspected that the company was running tight on reserves in 2024 due to elevated cost trends and the effects of the Change Healthcare (NASDAQ:CHNG) hack. The firm's estimates are slightly above consensus on earnings per share (EPS) by $0.07 (1%), in line on MLR, and above consensus on UnitedHealthcare (UHC) EBIT by 5.5%. They are also slightly ahead of consensus at Optum Health and Optum Insight, but 1.5% below at Optum Rx.
UnitedHealth Group's stock has recovered from recent lows and is now trading at 19.5 times the next twelve months' (NTM) EPS, which aligns with the S&P 500 average. Historically, over the past five years, UnitedHealth's trading multiples have been on par with those of the S&P 500. The analyst's valuation charts were referenced to support these observations.
In other recent news, UnitedHealth Group is set to benefit from a significant increase in Medicare Advantage rates finalized by the Centers for Medicare and Medicaid Services, which will rise by 5.06% for 2026. This adjustment, which exceeded initial expectations, is anticipated to enhance margins for Medicare Advantage plans, according to KeyBanc Capital Markets. KeyBanc maintains an Overweight rating on UnitedHealth with a $650 price target, highlighting the favorable outlook for the company. Meanwhile, Cantor Fitzgerald also reiterated its Overweight rating, setting a higher price target of $700, with expectations of potential upward revisions to UnitedHealth's financial outlook in 2025.
In another development, the U.S. Federal Trade Commission's lawsuit against UnitedHealth's Optum unit and other pharmacy benefit managers over insulin pricing practices is set to resume. The case had been paused due to recusal issues but will now proceed following the reversal of a recusal by FTC Chairman Andrew Ferguson. Additionally, U.S. Attorney General Pam Bondi has directed federal prosecutors to seek the death penalty for the accused murderer of a UnitedHealthcare executive, Brian Thompson. This legal decision follows a comprehensive review by the Attorney General's office.
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