Is it Time to Buy UnitedHealth Group Dip After Federal Probe News Adds to Turmoil?
As UNH sees its stock plummet following some more bad news, there could be an opportunity for stock traders.
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UnitedHealth Group UNH stock is down more than 11% early Friday morning as the Wall Street Journal has run a front-page story covering the launch of an investigation by the Department of Justice into medical billing practices at the healthcare giant in recent months. The Journal has been on this story, running a series of articles in 2024 that showed Medicare paying UnitedHealth billions of dollars for questionable diagnoses.
This is a civil investigation, but it adds to the level of scrutiny the firm is already under. The Department of Justice has already sued the firm to block the planned $3.3 billion acquisition of home-health company Amedisys on antitrust grounds.
About the diagnosis issue, though, the Journal reported in December that, according to its own work, Medicare records showed huge increases in "lucrative" diagnoses made by doctors employed by UnitedHealthcare. The company had apparently, according to the report at the Journal, trained doctors to document revenue-generating diagnoses and used software to suggest conditions while paying bonuses for consideration of such suggestions.
This all comes on top of the assassination of UnitedHealthcare CEO Brian Thompson on December 4, 2024 (UnitedHealthcare is part of UnitedHealth Group) and then the disappointing full-year 2025 guidance provided by the firm when it reported mixed Q4 2024 earnings on January 16. The shares closed on Thursday, down 17.7% since the end of November and that was ahead of Friday morning's weakness.
Oh, and lest I forget, the firm also revealed in late January that it had been the victim of a cyber-attack, and some data had been potentially exposed, impacting a rough 190 million people.
Also, this week, the firm announced that employees would be offered buyouts ahead of pending layoffs.
Digging into UnitedHealth Group Earnings
For the fourth quarter, UNH posted an adjusted EPS of $6.81, which did beat Wall Street by about seven cents. Unfortunately, though, the GAAP EPS landed at $5.98, which fell a couple of miles short of expectations, while revenue of $100.18 billion fell almost $1 billion short of consensus view.
Now, this may be the most interesting piece of data that UNH released when these earnings came out. The full-year 2024 medical care ratio for the firm increased to 85.5% from 83.2% for 2023. This metric is also referred to as the medical care loss ratio and the formula for the ratio is the total amount spent on medical claims and healthcare expenses divided by the total amount in premiums collected.
The industry standard for what is considered to be a "good" medical care ratio is largely seen as 85 or below. At the time, the firm attributed the cost increase to Medicare funding reductions, among other items such as member mix. Hmm... Optum Rx, the firm's pharmacy benefits division outperformed.
The firm guided this full year toward total revenue that fell about $3 billion short of what Wall Street was looking for and a range for adjusted EPS that at the midpoint, landed $0.11 short of Wall Street's consensus at the time.
UnitedHealth Group Stock Fundamentals
The firm remains a cash flow beast. Free cash flow has printed between $22 billion and $29 billion for six consecutive years. The balance sheet is strong enough. The firm had a cash position of more than $81.4 billion and a total debt load of less than $72.4 billion, while claiming no value for goodwill nor any other intangibles. With cash flows like this and a balance sheet like that, this company may face some gut punches in the near to medium term future, but it's not going anywhere.
UnitedHealth Group Stock Technicals
The question now on this "gap down" opening becomes: Just what are we looking at?
A falling-wedge pattern is a pattern of bullish reversal. It does not have to reverse soon, but the pattern is counterintuitive to what the non-practitioner might think.
That said, this may be a downtrend that is only a few months in the making. The positive would be that the stock tested the lower trendline of the regression model and rebounded on Friday morning.
Invest? For me, not now. I need to see that $439 level retested. I could see buying something small- to medium-sized for a trade. As for actually investing? There's too much hair on this thing for now.
My feeling is that it's better to simply allow something constructive to develop than to try to gate ahead of a turn for the better. Folks who rise existing trends still make money. Folks who try to catch the U-turn lose money more often than not.
This one is for playing the game, if that's one's thing... but not for catching the knife. Not yet.
At the time of publication, Guilfoyle had no positions in any securities mentioned.
