What Just Happened With UnitedHealth Stock?

UnitedHealth Group (NYSE: UNH) reported Q4 2025 earnings yesterday that slightly missed on revenue ($113.2B vs. $113.7B expected) while meeting EPS expectations at $2.11. But the real story? The double whammy: CMS proposed a nearly flat 0.09% Medicare Advantage rate increase for 2027 (analysts were expecting 4-6%), while UNH’s medical care ratio jumped to 88.9%, up 340 basis points year-over-year. The result: UNH stock sank 19%.

The Medicare ratio problem – is this sustainable?

Here’s the concern: UNH’s adjusted medical care ratio of 88.9% means they’re paying out $0.89 of every premium dollar in medical claims. That’s up from 85.5% in 2024. Why? Medical costs are rising 7.5% for Medicare Advantage, but pricing didn’t keep pace. CEO Tim Noel admitted their 2025 pricing assumptions “were well short of actual medical costs,” adding an extra $3.6 billion to expenses for the period. See more on the medical costs ratio in our earlier analysis – Why UnitedHealth Stock Dropped 50%: The MCR Crisis Explained.

Can they fix this? The 2026 guidance projects an MCR of 88.8% (plus or minus 50 bps). That’s only marginally better. With the 2027 rate increase at essentially zero and a new CMS policy eliminating 1.53 percentage points from diagnoses not linked to actual medical visits (the “upcoding” crackdown), margins face continued pressure.

That being said, if you seek an upside with less volatility than holding an individual stock like UNH, consider the High Quality Portfolio. It has comfortably outperformed its benchmark – a combination of the S&P 500, Russell, and S&P MidCap indexes – and has achieved returns exceeding 105% since its inception. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Pixabay

Revenue trajectory – why the decline?

• Full-year 2025 revenue: $447.6 billion (up 12%)
• 2026 revenue guidance: >$439 billion (down 2%)

This would be UNH’s first annual revenue decline since 1989. Management calls it “right-sizing across the enterprise.” Translation: They’re shedding unprofitable Medicare Advantage members – expecting roughly 1 million member losses in 2026. They served 49.8 million people in 2025. Also, see UnitedHealth Group’s Revenue Comparison.

What about profitability and cash flow?

• Q4 2025 adjusted EPS: $2.11 (down from $5.98 in Q4 2024 – a 65% decline)
• Full-year 2025 adjusted EPS: $16.35
• 2026 adjusted EPS guidance: >$17.75 (8.6% growth)
• Operating margin: 2.7% in 2025, projected to improve to 5.5% in 2026
• Cash flow from operations: $19.7 billion (1.5x net income) – this remains healthy, but the company took a $1.6 billion charge for restructuring, and the Change Healthcare cyberattack cost $799 million in revenue.

Valuation picture – is this a bargain?

At the current price of around $285, UNH trades at roughly 16x 2026 estimated EPS of $17.75. Also, see UNH Stock Valuation Ratios Comparison. Historically, UNH traded at 18-22x forward earnings. The discount reflects:

• Regulatory uncertainty (the 0.09% rate is preliminary; final rates come in April)
• DOJ investigation into Medicare billing practices
• Structural margin compression in Medicare Advantage

Analyst consensus: Strong Buy with an average price target of around $396 – suggesting 40% upside if conditions normalize.

It seems that UNH is likely heading for the base case we discussed earlier in December – How Does MCR Impact UnitedHealth’s Earnings And Stock?

The real question – is the worst over?

Not yet. The 2027 rate proposal, if finalized in April, eliminates the “upcoding” revenue stream that’s been a tailwind for years. UNH has 30% of national Medicare Advantage enrollment – the highest exposure in the industry. However, their diversification (Optum Health generating 6-8% margins long-term, Optum Rx, Optum Insight) provides some buffer that pure-play Medicare insurers like Humana don’t have.

Investment view: UNH is facing a structural reset, not a temporary blip. The 2027 rate proposal fundamentally changes the Medicare Advantage economics. While management’s track record suggests they can adapt (they’ve delivered 15%+ annual returns over the past decade), near-term headwinds are severe. It seems wise to wait for April’s final rate announcement and clarity on DOJ investigations before establishing positions. Current valuation, although lower than historical average, reflects significant risk – and that risk hasn’t fully resolved.

Remember, investing in a single stock without comprehensive analysis can be risky. Consider the Trefis Reinforced Value (RV) Portfolio, which has outperformed its all-cap stocks benchmark (combination of the S&P 500, S&P mid-cap, and Russell 2000 benchmark indices) to produce strong returns for investors. Why is that? The quarterly rebalanced mix of large-, mid-, and small-cap RV Portfolio stocks provided a responsive way to make the most of upbeat market conditions while limiting losses when markets head south, as detailed in RV Portfolio performance metrics.

Invest with Trefis Market-Beating Portfolios
See all Trefis Price Estimates