United Healthcare Craters 45% YTD : Will It Recover?

 


    United Healthcare Group (UNH) stocks are trading significantly lower today after a series of misfortunes have made it plunge over the last couple of months. Considering the current price, is it a buy or sell? Three key topics need to be covered : its most recent earnings, the CEO switch-up and the DOJ investigation. 

    Earnings have been a key driver of UNH's downfall over the last few months, yet it might have been an overreaction : while the earnings were below their expected key levels, the company did continue to grow their EPS quarter-on-quarter. It is quite hard to believe that a miss of -0.09c on their earnings deserves a slash of 20% on their stock price. However, it does show increasing issues within the company : an elderly (and dying) customer base and slower growth for their key Optum services (pharmaceutical services business making up 44% of their profits) may indicate a slow-down in revenue and profit growth. Yet, this growth still continues to occur, with UNH continuing to cement itself as a key player in the pharmaceutical and insurance companies : it is one of the biggest and most profitable insurance providers in the US, with diluted EPS much higher than those of competitors.

    More recently, Andrew Witty was replaced by Stephen Hemsley as CEO of UNH, a seasoned member of the board and former CEO. He was plagued by prominent legal issues following his resignation in 2017, most notably a fraud case concerning him filed by then-CEO Brian Thompson, bringing controversy to UNH following an already rocky earnings report. It is now a question of whether Hemsley will be able to turn this sinking ship around back into stable ground. UNH has handed the keys to the man who made them the giant they are today.

    Finally, a WSJ report on a rumored DOJ investigation into UNH sent stocks tumbling Thursday after investors' fears were only heightened over a potential fraud investigation. It must be noted however, that this has not been confirmed by the DOJ, with UNH claiming they had no prior information about the inquiry. The alleged concern of the investigation is Medicare Advantage fraud committed by the company, yet there is no evidence provided by the WSJ for this. It must be stressed that there is no criminal case against UNH, meaning no charges have been filed and key revenue streams will not be affected.

    All of these factors have made the stock severely undervalued from a fundamental standpoint : an extremely low P/E ratio compared to competitors, with an above average EPS. The stock market's distaste for uncertainty is certainly to blame here : it is difficult to say whether Hemsley will bring the company back to its former glory or only bog it down, but at its base, the company remains highly profitable. The biggest US healthcare provider has just gotten a big discount.

UNH : -13.58% ; SPX : +0.31% ; NSDQ : -0.04%


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