Investment Research Report: UnitedHealth Group Inc.

📅 Date: 07/27/2025

Note: This report is for informational purposes only and does not constitute investment advice; please refer to the full disclaimer at the end.

1. Investment Thesis in One Sentence

UnitedHealth Group offers a rare chance to buy a dominant, cash-generative healthcare giant at a discount, with considerable upside if the perceived impact of regulatory and structural risks fades.

2. Business Snapshot

Overview:

UnitedHealth Group is one of the largest and most diversified healthcare companies in the world.

It operates through two core segments:

• UnitedHealthcare: Offers health benefits across employer and individual plans, Medicare & Retirement, and state-sponsored programs.

• Optum: Delivers care, technology-enabled health services, and pharmacy care through a vast network of providers.

The company ranks an impressive 6th globally by revenue, generating $410B annually.

• This places it ahead of notable titans like Apple, Alphabet, Microsoft, Costco, and JPMorgan.

General Information:

• Ticker: $UNH

• Sector: Health Care Providers and Services

• Year Founded: 1974

• CEO: Stephen J. Hemsley

• Market Cap: $255B

• Current Price: $281

Overall Revenue Growth:

UnitedHealth Group has grown revenue at an 11% CAGR since 2015, impressive given its massive scale.

Growth has shown no signs of slowing.

Revenue increased nearly 12% CAGR over the past 3 years and was up 8% YoY in the latest fiscal year.

Revenue by Segments:

UnitedHealth operates through two core segments:

• UnitedHealthcare, which contributes 74% of total revenue.

• Optum, which makes up 25% of total revenue.

While UnitedHealthcare dominates in size, Optum is the key growth engine.

• Since 2012, revenue for UnitedHealthcare has compounded at 9%, while Optum has grown at a 25% CAGR.

• Over the past 3 years, segment growth was 10% and 16%, respectively.

Optum’s revenue comes from:

• Optum Rx, which makes up 53% of revenue.

• Optum Health, which makes up 39% of revenue.

• Optum Insight, which makes up the remaining 8% of revenue.

Both Optum Rx and Optum Health have grown revenue in the high 20% range since 2012.

• Notably, Optum Rx saw a major boost in 2015 following the acquisition of Catamaran, a pharmacy benefit manager.

Operating Income By Segment:

Despite UnitedHealthcare generating 3x the revenue, Optum contributes just as much to operating income.

• Each segment accounts for roughly 50% of total operating profit.

• That’s because Optum operates at a 16.8% margin, over 3x higher than UnitedHealthcare’s 5.3%.

Diluted EPS:

Diluted EPS has compounded at 11% since 2015, including an exceptional 19% CAGR between 2015 and 2023.

However, in the most recent year, earnings dropped 35%.

• One of the main drivers of this decline was a cyberattack on its subsidiary, Change Healthcare, which affected 190M individuals and resulted in a $2.9B financial hit.

Free Cash Flow:

Free cash flow exhibited a similar trajectory to earnings, with a 17% YoY decline in the most recent year following a sustained period of growth.

• Excluding this recent drop, FCF had grown at a 15% CAGR.

• Even when including the decline, it has still compounded at an 11% CAGR, reflecting the company’s strong underlying cash generation over time.

3. Context

UnitedHealth Group shares peaked at $630 on November 11, 2024.

• Since then, the stock has plunged 55% to $281, wiping out all five-year gains.

• Over the past five years, it has returned -7%, while the S&P 500 is up 99% during the same period.

• With the company down 44% YTD, it is the worst-performing name in the Dow Jones Industrial Average in 2025.

So what caused the collapse?

1/ Assassination of UnitedHealthcare CEO Brian Thompson

In early December 2024, Brian Thompson, the CEO of UnitedHealthcare (the health insurance division, not the parent company), was assassinated.

• The shocking event triggered a 21% selloff, rattling investor confidence and raising concerns about leadership disruption.

Although shares quickly rebounded, reaching $600 by April 2025, the event marked a turning point, drawing heightened public and regulatory scrutiny to both UnitedHealth Group and the broader industry.

Notably, the company had issued guidance the day before the tragedy, and reaffirmed it on January 16th, a move that drew criticism.

• A class-action lawsuit was later filed by shareholders, alleging the reaffirmation was reckless given the circumstances.

Still, the reaffirmation likely helped support the stock in the short term, until its broader unraveling began in April.

2/ Q1 2025 Earnings Miss

On April 17, the company reported its first earnings miss since 2008, triggering another wave of selling.

Adjusted EPS came in at $7.20, below consensus of $7.29.

• The miss was attributed to surging medical costs in its UnitedHealthcare segment, where Medicare Advantage utilization rose much faster than expected.

• UnitedHealth had forecasted 2025 care trends to mirror 2024 levels, but Q1 care activity came in at 2x the rate.

Meanwhile, Optum faced reimbursement headwinds of its own.

• Many of the new Medicare enrollees added in 2024 initially required little care, resulting in lower government payments planned for 2025.

• However, those same patients began seeking more care than expected this year, catching the company off guard and pressuring margins.

Additionally, funding cuts under the Biden administration and reduced use of corporate group Medicare plans added to the pain.

3/ CEO Resignation & Financial Outlook Withdrawn

In May 2025, CEO Andrew Witty abruptly stepped down for “personal reasons,” further shaking investor confidence.

• Witty had served as CEO since 2021.

• He was replaced by Stephen Hemsley, former CEO from 2006 to 2017.

On the same day, the company withdrew its full-year outlook, citing worsening care utilization trends and continued pressure from Medicare costs.

4/ Criminal Fraud Allegations

Just days after Witty’s resignation, the Wall Street Journal reported that UnitedHealth Group was under criminal investigation by the DOJ for potential Medicare fraud, specifically within its Medicare Advantage unit.

• UnitedHealth denied receiving a DOJ notice, and the DOJ declined to comment.

• But by July, the company confirmed it was indeed under investigation after proactively reaching out to the DOJ.

Even before the criminal investigation became public, Medicare Advantage practices were under a broader microscope.

• A few months prior, during Dr. Oz’s Senate confirmation hearing to lead the Medicare agency under Trump, he pledged to crack down on aggressive billing tactics used by private insurers.

• This backdrop intensified concerns around UnitedHealth’s billing behavior.

Additional investigative reporting added to investor fear:

The Wall Street Journal later reported that the FBI and Department of Health and Human Services were interviewing former UnitedHealth employees about whether the company encouraged documentation of lucrative, potentially questionable diagnoses.

Past research from the Wall Street Journal found that between 2019 and 2021, UnitedHealth reportedly received $2,735 in extra payments per nurse home visit, 50% more than the average Medicare Advantage insurer.

Separately, The Guardian uncovered concerns about alleged bonus payments to nursing homes designed to reduce hospital transfers and cut costs.

• UnitedHealth responded, stating the allegations were false, and that bonuses were designed to avoid unnecessary and costly hospitalizations.

• The company also sued the Guardian and its parent for defamation.

5/ Structural Medicare Advantage Headwinds

Medicare Advantage remains under pressure from both policy and cost dynamics:

• Rising medical costs

• Varying reimbursement rates

• The passage of the “One Big Beautiful Bill,” which includes:

  • Medicare spending cuts

  • Faster, more transparent pre-approval requirements (raising costs)

All of these create potential headwinds for UnitedHealth as they fluctuate from year to year.

6/ Stealth Asset Sales to Hit Wall Street Targets

As reported by Bloomberg, UnitedHealth discreetly sold stakes in internal business units to private equity firms, recognizing gains in adjusted earnings.

• This allowed it to beat Q4 estimates and maintain a streak of 60 consecutive quarters of earnings beats.

The sales raised concerns that the company was masking underlying weakness, though UnitedHealth Group maintains the transactions were routine asset sales and they had valid business justifications for the deals.

7/ Employer Cost-Shifting Pressure

With health insurance costs rising, employers are increasingly shifting expenses to employees.

This could reduce plan participation or drive consumers to lower-cost options, pressuring UnitedHealth’s revenue.

4. Opportunity

UnitedHealth Group has taken a beating with shares down over 50% from their all-time high.

• If the stock simply returns to its prior peak, it would represent a +120% gain from current levels.

While sentiment is at rock bottom, there are signs the worst may be behind, with several factors that could drive a turnaround.

1/ Fraud Allegations May Be Overblown

There’s a high degree of complexity in the ongoing DOJ investigation, but past legal challenges suggest the case may be weak.

In March 2025, a court-appointed special master recommended dismissing a whistleblower case that alleged $2B in improper diagnosis coding by UnitedHealth.

The government failed to present sufficient evidence showing the submitted diagnoses were inaccurate.

• The case, filed in 2011 and joined by the DOJ in 2017, focused on unsupported diagnoses used to inflate Medicare Advantage reimbursements.

• The DOJ asked the judge to reject the special master’s recommendation, but the judge has not yet ruled.

• UnitedHealth responded that the findings confirmed “there was no evidence” they were overpaid or acted improperly.

Additionally, at the June shareholder meeting, the company announced it would:

• Review its processes for documenting payment-triggering diagnoses

• Implement independent third-party oversight and audits to strengthen coding practices and supplement the company’s existing quality assurance program

In July, the company reaffirmed that independent CMS audits have validated the accuracy of its coding practices.

2/ Industry-Wide Headwinds

UnitedHealth Group isn’t alone.

Other major health insurers have also sold off and/or cut guidance over the past year, driven by Medicare Advantage-related cost pressures, rising medical costs, increased morbidity, and unpredictable care utilization.

Elevance Health:

• Cut its 2025 earnings guidance, citing elevated medical costs in both the ACA individual market and Medicaid.

• Management pointed to rising utilization and a higher medical benefit ratio as key drivers.

Centene:

• Withdrew its 2025 financial guidance after preliminary data showed worse-than-expected risk adjustment trends in its ACA Marketplace business.

• The company noted increasing member morbidity and care costs.

Meanwhile, overall sector valuations remain deeply depressed.

According to Goldman Sachs, the healthcare sector is trading at a 30-year low relative to the S&P 500 based on forward 12-month P/E basis.

3/ Drug Denial Criticism Is Broad-Based

UnitedHealth has faced public criticism for denying coverage of certain prescriptions, but this trend is industry-wide, not unique.

• Per Komodo Health data reported by the New York Times, the denial rate across the five largest private insurers rose from 18.3% in 2016 to 22.9% in 2023.

• UnitedHealth’s rate has held relatively steady since 2019, now sitting at 23%.

A company spokesperson noted that most rejected claims are followed by approved resubmissions, suggesting the system isn’t simply designed to deny care.

Additional context:

• According to health policy group KFF, individuals with government-funded coverage like Obamacare had 17% of their care denied in 2021.

• Private insurers may reasonably argue for tighter cost controls, particularly on expensive categories like GLP-1s.

To address rising complaints, top U.S. health officials and insurers (including UnitedHealth) have pledged to reform the prior authorization process:

• Fewer services requiring approval

• Real-time decisions using tech

• Medical experts reviewing denials

These reforms will be industry-wide, preserving competitive parity and reducing reputational overhang for UnitedHealth Group.

4/ Operational Adjustments & Tailwinds

UnitedHealth is taking proactive steps to recalibrate its business in response to elevated care costs and policy headwinds.

Pricing & Planning Adjustments

• The company raised its medical care ratio forecast to 87.5%, up from 86%.

• CFO John Rex noted this gives better visibility to price 2026 plans more accurately.

• CEO Stephen Hemsley emphasized that future Medicare Advantage and private plans will fully account for higher utilization trends.

Cost Optimization Initiatives

• Broker commissions are being reduced on select Medicare Advantage plans, helping lower acquisition costs and manage enrollment.

• UnitedHealth is reportedly pursuing a $1B sale to exit Latin America, which has been a drag on profitability and would allow the company to sharpen its focus on core U.S. operations.

2026 Reimbursement Tailwind

The most meaningful external relief may come from Washington:

• For 2026, the government approved a 5.06% increase in Medicare Advantage reimbursement rates, more than double the originally proposed amount.

• Higher reimbursement rates translate into stronger monthly premiums, directly supporting both revenue and margins.

Additional operational updates may still be on the horizon.

• UnitedHealth Group is set to report earnings on July 29, and the company has moved its earnings call 45 minutes earlier.

• This shift is intended to allow for more time to discuss results with analysts and investors, signaling a commitment to transparency and deeper engagement.

5/ Veteran Leadership Returns

Stephen J. Hemsley’s return as CEO brings familiarity and experience.

• He previously led the company from 2006 to 2017, including through the Great Financial Crisis

• His reappointment was swift, raising speculation that Andrew Witty may have been forced out.

• Despite initial investor speculation, this leadership change is not necessarily indicative of any admission of wrongdoing by the company.

Jeffrey Sonnenfeld, founder of the Yale Chief Executive Leadership Institute, noted quick transitions like this often indicate a board taking decisive control to reset direction.

Suspending guidance also mirrors the classic “kitchen sink” strategy, giving the new CEO room to reset expectations and rebuild momentum without being tied to prior assumptions.

Importantly, there doesn’t appear to be any indication of long-term business deterioration.

6/ Insider & Congressional Buying

Legendary investor Peter Lynch once famously said, “Insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise.”

Recent insider activity signals growing confidence in UnitedHealth Group’s long-term outlook.

Between May 14 and May 16, six executives purchased shares of the company.

Among them:

• New CEO Stephen Hemsley bought $25M worth of stock at a $289 cost basis

• CFO John Rex purchased $5M worth of stock at a $291 cost basis

Adding to the conviction, members of Congress have also disclosed purchases.

Notably, Marjorie Taylor Greene reported buying up to $65K of UNH stock during the same window as insider activity.

7/ Tariff, Geopolitical, & Recession Resilience

Unlike many global companies, UnitedHealth’s business is largely U.S.-focused, making it more insulated from:

• Tariff exposure

• Supply chain disruptions

• Geopolitical instability

This positions the company as a relative safe haven in volatile macro environments.

Additionally, demand for healthcare overall is relatively inelastic, as people still need prescriptions, doctor visits, and medical procedures irrespective of economic conditions.

8/ Shareholder Alignment Through Dividends & Buybacks

UnitedHealth Group’s capital returns reflect strong alignment with long-term shareholders.

The company’s dividend yield now stands at 3.2%, its highest level over the last decade.

• At the current quarterly payout of $2.10 per share, that equates to $8.40 annually.

But this likely understates future returns.

• UnitedHealth has a long track record of dividend growth, with its dividend per share compounding at 18% annually since 2015, supported by consistent free cash flow generation.

In addition to dividends, the company has accelerated share repurchases.

In 2024 alone, UnitedHealth repurchased $9B worth of stock, providing additional support to earnings per share and reinforcing shareholder alignment.

5. Risk Radar

UnitedHealth Group is not immune to long-term structural risks, regulatory pressure, or public scrutiny.

These are factors that can cloud investor conviction and impact future earnings power.

Here are several key risks worth monitoring:

1/ Heightened Public Scrutiny and Reputational Risk

UnitedHealth Group has become a lightning rod for criticism.

• A New York Times report noted the company’s strong posture toward critics, prompting discussion around its approach to public scrutiny.

• High-profile investors like Bill Ackman have also voiced concerns, further elevating negative sentiment around the stock.

This elevated visibility creates a narrative risk that can persist independent of fundamentals.

2/ Constant Regulatory Oversight

In its latest annual report, UnitedHealth Group disclosed it is either currently or has recently been the subject of multiple governmental investigations, audits, and reviews.

These span several agencies, including:

• The Department of Justice (DOJ)

• The Internal Revenue Service (IRS)

• The Department of Labor

• The Securities and Exchange Commission (SEC)

While some are routine, this persistent oversight adds a layer of regulatory risk that could lead to fines, settlements, or significant operational changes over time.

3/ Complex Business Structure & Unpredictable Policy Risk

UnitedHealth Group’s business model is vast and deeply interconnected.

As the Wall Street Journal noted, the internal transactions between its units, like Optum and UnitedHealthcare, can be difficult to parse, especially for generalist investors.

• This complexity makes it hard to assess how structural changes, regulatory shifts, or internal reorganizations will impact the business in real time.

• More transparency could ease investor concerns, but also risks exposing operational tactics that may draw further scrutiny from regulators or competitors.

If any misconduct or fraud exists, it may not be readily obvious, particularly if opaque business lines obscure accountability.

This creates a “black box” effect, where investors are forced to place some degree of faith in management’s integrity and internal controls.

6. Valuation

UnitedHealth Group looks undervalued across multiple valuation models, both relative to its history and its fundamentals.

1/ Forward PE vs Historical Median

On a forward P/E basis, UnitedHealth Group is trading near its lowest valuation over the last decade at 13.6x, about a 28% discount to its historical median.

2/ Forward P/FCF vs Historical Median

On a forward P/FCF basis, the valuation looks even more compelling.

UnitedHealth Group trades at just under 11x, near its 10-year low and at a 33% discount to its 16.1x historical median.

3/ Discounted Cash Flow

While DCFs come with inherent uncertainty, they offer a valuable lens for assessing long-term intrinsic value.

As Warren Buffett famously said, “It is better to be approximately right than precisely wrong.”

To anchor our model, we used analyst estimates compiled by Fiscal AI, which forecast:

• A 21% decline in FCF for 2025

• Followed by a rebound of 8% in 2026

• And 11% growth in 2027

I incorporated these figures as a starting point, then applied even more conservative assumptions across our low, base, and high cases over a 10-year horizon.

Despite the cautious inputs (lower growth rates, modest terminal multiples), the valuation remains compelling.

• Fair Value Estimate: $345

• Current Price: $281

• Implied Upside: +23%

This suggests the stock currently trades at a 19% discount to intrinsic value, even under conservative assumptions.

7. Final Take

I want to be upfront. I'm not an expert in the health insurance space.

• My interest in UnitedHealth Group and the broader sector was sparked by the dramatic collapse in healthcare stocks over the past year.

• What started as curiosity has turned into weeks of deep research, and based on everything I’ve uncovered, UnitedHealth looks like a compelling opportunity.

If the ongoing investigations prove overblown, or result in no significant findings, the stock could see an immediate re-rating.

• Even in a scenario where a settlement occurs, a one-time fine may impact short-term cash flow but could help clear the overhang.

The company is also actively reorganizing to better align with new policy and regulatory realities, which may better position it for whatever comes next.

At today’s valuation, UnitedHealth Group offers a strong risk/reward setup, especially for investors seeking value in an otherwise expensive market.

• There may be even cheaper names in the sector, but UnitedHealth Group brings broader scale, resilience, and a history of long-term outperformance.

That said, this is not a simple business to analyze.

• The health insurance ecosystem is complex, the regulatory environment is fluid, and sentiment is near rock bottom.

But for investors with a long time horizon and a high risk appetite, this could be a rare chance to own one of America’s best-performing large caps, at a solid discount.

I am long $UNH.

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