UNITED HEALTH STOCK IS CRASHING! UNH

Summary

United Health's earnings report shows a significant miss on EPS, with a 5% drop in stock value. The company is struggling with rising healthcare costs, leading to an increased medical loss ratio. To recover, they plan to raise premiums and exit unprofitable markets, affecting 600,000 members. Despite short-term challenges, they expect a recovery starting in 2027, with long-term growth projections of 12-13%. The stock is trading at a lower-than-average PE ratio, making it potentially attractive for future growth, especially if the company follows through with its planned buybacks and navigates ongoing investigations.

Takeaways

• 😀 United Health's stock is down 5% after the earnings report, which had mixed results.
• 😀 The company missed earnings per share expectations significantly, reporting $4.8 versus the expected $4.48.
• 😀 Despite missing earnings expectations, United Health beat revenue projections.
• 😀 The company's medical loss ratio increased to 89.4%, up from 85.1% last year, mainly due to rising healthcare expenses.
• 😀 To address the rising costs, United Health will likely raise premiums across the industry, as all insurance companies face similar challenges.
• 😀 United Health's outlook for 2025 includes an additional $6.5 billion in medical costs beyond what was originally anticipated.
• 😀 The company is focusing on margin recovery and has mentioned exiting unprofitable markets, affecting over 600,000 members.
• 😀 Insurance companies, including United Health, benefit from long-term customer retention, with profitability improving the longer a patient stays in the plan.
• 😀 United Health's long-term earnings growth is expected to recover by 2027, not 2026 as originally anticipated.
• 😀 The company is targeting a 12-13% long-term growth rate for earnings per share, and is likely to implement a major share buyback program.
• 😀 Although the short-term outlook isn't great, the stock is trading at a relatively low PE ratio of 16.5, making it a potential opportunity if the company can execute its strategies.

Q & A

Why is United Health's stock down by 5% after reporting earnings?

The stock is down due to a significant miss in earnings per share (EPS), with United Health reporting $48 per share versus the expected $4.48. The company also faced higher-than-expected medical costs, which impacted profitability.

What was the main reason for United Health's poor earnings performance?

The main reason for the poor earnings performance was a higher medical loss ratio (89.4%), which reflects increased healthcare expenses that outpaced the premiums charged. This resulted in significant losses for the company.

How does United Health plan to address the high medical costs?

To address the high medical costs, United Health plans to raise premiums in order to align the costs with the revenue from premiums. This is a common strategy across the insurance industry.

What decision did United Health make regarding unprofitable markets?

United Health decided to exit certain unprofitable markets, affecting over 600,000 members, in order to focus on more profitable growth and improve margins.

How does the length of time a patient stays with United Health impact its profitability?

The longer a patient stays with United Health, the more profitable they become for the company. Patients who remain in the system for a longer time undergo regular checkups, reducing the need for costly procedures, which improves margins for the company.

What is the significance of United Health's long-term growth outlook?

United Health is expecting long-term earnings per share (EPS) growth in the range of 12-14%, but the recovery is now projected to take until 2027, rather than 2026 as previously anticipated.

How does the company's outlook for 2025 compare to previous expectations?

For 2025, United Health's guidance suggests a challenging year with moderate growth. However, they have set low expectations for 2025, which makes it easier to exceed those numbers. The company is more optimistic about a recovery starting in 2027.

What role does share buybacks play in United Health's strategy?

Share buybacks are a key part of United Health's strategy to return value to shareholders. The company may announce a large buyback program in the future, which could help boost the stock price, especially as the company is trading at a relatively low P/E ratio.

What did the CEO say about the company's long-term growth trajectory?

The CEO emphasized that the long-term growth outlook remains intact, with the company expecting low double-digit earnings growth in the future. However, this growth is now expected to materialize around 2027, not sooner.

What is the current P/E ratio for United Health, and how does it compare to historical averages?

United Health's current P/E ratio is approximately 16.5, which is below the historical average of 19. While not a bargain, this lower multiple reflects a worst-case scenario and suggests that the stock could perform better once the company recovers.