UnitedHealth stock rating cut by HSBC to Reduce, target to $270

On Wednesday, HSBC analysts made a significant adjustment to their outlook on UnitedHealth Group (NYSE:UNH), downgrading the stock from Hold to Reduce and slashing the price target to $270 from the previous $490. The revision comes with a detailed commentary from the analysts, pointing to several factors that could potentially hinder UnitedHealth’s financial recovery. The healthcare giant, currently valued at $291.7 billion, trades at a P/E ratio of 13.3x, with InvestingPro data showing 20 analysts have recently revised their earnings estimates downward for the upcoming period.

The analysts at HSBC have identified three primary concerns that they believe could impact UnitedHealth’s future performance. Firstly, there is an anticipated risk associated with the medical loss ratio (MLR) for the year 2025, which is expected to exceed the company’s earlier guidance. The Visible Alpha consensus estimates an MLR of 88.1%, which is higher than the previously withdrawn guidance of 87-88%. This MLR risk could also extend into 2026. Despite these concerns, InvestingPro analysis indicates the company maintains strong fundamentals with a robust free cash flow yield and sufficient cash flows to cover interest payments.

Secondly, HSBC analysts warn of policy risks related to Optum Rx, UnitedHealth’s pharmacy benefits manager. They believe that the potential impact of a pharmacy benefit manager (PBM) bill or the proposed most-favoured nation (MFN) drug pricing model is not being adequately accounted for by the market.

The third point raised by the analysts is the argument for a lower multiple due to expectations of a reduced return on equity (ROE). This is based on the belief that the earnings cut cycle may persist, particularly after the recent cancellation of earnings guidance, which the analysts suggest offers the new CEO a chance to reset expectations, a process colloquially known as "kitchen sinking."

Looking ahead, HSBC analysts anticipate that the recovery for UnitedHealth might be postponed, as reflected in their lowered earnings estimates for 2026-2027. They emphasize that the company’s performance in Medicare Advantage, including bids, benefits, and star ratings, will be crucial for the years 2026-2027. Additionally, potential Medicaid funding cuts could adversely affect UnitedHealth’s Medicaid business. The stock has experienced significant pressure, declining 45.7% over the past six months, though InvestingPro’s comprehensive analysis suggests the stock may be undervalued at current levels. For detailed insights and access to the full Pro Research Report covering UNH’s outlook, visit InvestingPro.

The analysts concluded their assessment by acknowledging that they had previously underestimated the earnings risk for UnitedHealth in their bear case scenario, which was outlined following the stock’s sell-off on April 22, 2025. The new price target and stock rating reflect HSBC’s revised expectations for UnitedHealth Group’s financial prospects.

In other recent news, UnitedHealth Group has experienced a series of significant developments impacting its financial outlook and leadership. Wolfe Research has adjusted its price target for UnitedHealth to $390, maintaining an Outperform rating, and anticipates a 23% upside based on future earnings potential. Bernstein has also revised its target to $377, citing executive changes and a strategic shift in focus, while predicting a decrease in earnings per share for 2026. Truist Securities lowered its price target to $360, maintaining a Buy rating, and highlighted increased utilization pressures in Medicare Advantage as a factor in their revised outlook.

Additionally, TD Cowen downgraded UnitedHealth from Buy to Hold and reduced the price target to $308, citing concerns over coding practices and potential legal scrutiny. Raymond (NSE:RYMD) James maintained a Market Perform rating but lowered future EPS estimates due to concerns over the quality of earnings and non-recurring gains. These adjustments reflect varying perspectives on UnitedHealth’s ability to navigate current challenges, including changes in leadership, strategic shifts, and industry pressures. Each firm’s analysis underscores the complexities UnitedHealth faces as it addresses these evolving dynamics.

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