UnitedHealth Could Get Worse Before It Gets Better

After a punishing first half of the year, UnitedHealth’s latest earnings report delivered another gut punch.

The stock, which had already been cut in half year-to-date by July 31, slid even further following the release.

Between deteriorating fundamentals, mounting regulatory pressure, and a brutal earnings revision, it’s fair to ask whether UnitedHealth finally hit bottom, or is the floor still falling?

Key Points

• Profit fell by over 42% and guidance dropped to $16 per share, sending the stock lower.

• Regulatory risks and rising medical costs are squeezing margins.

• At just 11x earnings with a 3%+ yield, UnitedHealth may offer long-term upside for patient investors.

Costs Soaring, Guidance Slashed & Leadership in Flux

On the surface, UnitedHealth is still growing. The company pulled in $111.6 billion in revenue last quarter, a 2% year-over-year increase. But scratch beneath the surface, and the cracks are glaring.

Net income plunged to $5.2 billion, hammered by spiraling medical costs. The company’s medical care ratio, the percentage of premiums spent on patient care, jumped to 89.4%. That’s a huge shift for a company whose profitability hinges on precisely managing these costs. When that ratio gets too high, profits evaporate.

What’s driving the surge in medical expenses?

A mix of deferred procedures from 2020-21 era and rising demand for high-cost treatments like GLP-1 drugs, advanced cancer therapies, and robotic surgeries.

Adding to the chaos, CEO Andrew Witty stepped down, and longtime executive Stephen Hemsley returned to steady the ship.

Investors had hoped that new leadership would bring a clearer vision, but instead, the company slashed its full-year outlook.

Looming Cloud No One Can Quantify Yet

Then there’s the elephant in the room, which is UnitedHealth is under investigation by the Department of Justice.

While details remain sparse, reports suggest the probe relates to its handling of Medicare Advantage reimbursements and potential conflicts of interest stemming from its Optum division, which both provides care and administers benefits.

It’s difficult to handicap the financial implications of a federal probe, but the market doesn’t like uncertainty, especially when legal action could bring regulatory scrutiny to one of UnitedHealth’s most profitable verticals.

Medicare Advantage margins have already come under pressure from federal payment adjustments in 2025, and if Optum’s business model is forced to change, the long-term impact could be substantial.

Cheap for a Reason, or an Opportunity in Disguise?

UnitedHealth’s valuation has fallen off a cliff. The stock now trades at just 13x forward earnings, the lowest multiple since the pandemic crash of 2020 and well below the S&P 500’s current average of 25x.

On a trailing basis, the P/E has dipped to just 11x. For context, the company typically commands a premium valuation in the mid-to-high teens due to its size, profitability, and industry leadership.

This disconnect raises a crucial question of whether UnitedHealth is a value trap, or a rare opportunity to buy a best-in-class operator at a fire-sale price?

UnitedHealth has begun exiting unprofitable Medicare Advantage markets. That may not sound exciting, but it’s exactly what you want to see from a management team focused on stabilizing margins. It shows they’re prioritizing long-term profitability over market share, a smart move, especially with reimbursement cuts looming.

Dividend Support Adds a Cushion

Another overlooked aspect of UnitedHealth’s investment case is the dividend.

Even after the sell-off, the company is still generating enough cash to support a payout that now yields over 3%, a rarity in healthcare.

That dividend, combined with buybacks, returned nearly $10 billion to shareholders over the past 12 months.

While management has temporarily paused buybacks, the dividend looks safe, backed by almost $30 billion in trailing 12-month operating cash flow.

Time to Buy or Time to Bail?

This isn’t a classic “buy-the-dip” story. UnitedHealth’s issues are real, and they’re not going away overnight. But long-term investors with a strong stomach might see a compelling opportunity here.

The stock is trading near a five-year low in valuation, the market seems to have priced in a worst-case scenario, and the company is making tough choices to right the ship.

If it can stabilize costs, navigate the DOJ probe without major penalties, and continue trimming fat from its Medicare Advantage footprint, the upside could be substantial.