In many ways, it all comes down to Tuesday’s scheduled UnitedHealth Group earnings report — in a minute I’ll explain why that’s so important. Profits are plummeting, and the Department of Justice (DOJ) is investigating its Medicare business practices. UnitedHealth chairman and CEO Stephen Hemsley will be unveiling the results shortly, so stay tuned. For the full year adjusted earnings, analysts are looking for $21.26 a share, but wide variation exists among estimates ranging from $18 a share to $26.44 a share.
And in the last few months, UnitedHealth’s Optum Health subsidiary was reporting a $600 million profit plunge for the first quarter of this year. This decline prompted the company to hire third-party auditors in June to evaluate its health insurance and pharmacy benefits services. UnitedHealth is, of course, trying to be helpful with the current investigations into its business practices. Furthermore, the company recently prevailed in a decision from a court-appointed special master over similar accusations brought by the DOJ back in March.
Analysts were still fretting over UnitedHealth’s withdrawn earnings outlook for 2025. The company withdrew their guidance in mid-May and they expect to offer more clarity on an upcoming earnings call. Royal Bank of Canada Capital Markets analyst Ben Hendrix forecast the bottled water company’s earnings to soar to $23.36 per share. Nonetheless, Wall Street’s collective mood remains decidedly pessimistic.
“Anything below $18 — that would be viewed as a negative by the street,” stated Ann Hynes, clearly indicating that lower-than-expected earnings could further erode investor confidence.
That’s because the company’s flagship Medicare Advantage program has notoriously propped up UnitedHealth’s performance against its peers. Armed with a network of 90,000 employed or affiliated doctors of the insurer’s own, it has held a somewhat unassailable market position. As analysts such as Michael Ha caution, a long-awaited recovery will not come as soon as some expect.
I think it’s an example of misexecution. They knew what the headwinds were going to be this year and well before that. Yet, due to a mix of constraints, they found it hard to reach agreement. Ha explained. He reminded investors that he’s still confident the recovery of Optum Health is on its way and the unit economics are getting better for UnitedHealth. Yet, he cautioned that pressures may only get worse in the next year or two.
So long as UnitedHealth steers this mighty ship through these volatile waters, it will continue feeling the heat from regulators and lawmakers on all sides. Wendell Potter, a former insurance executive who became a prominent critic of the industry, pointed out the growing fears of legislators in the House and Senate. “A lot of the members of Congress who are doctors or Republicans, some are pharmacists, and they see firsthand the heavy hand of these companies,” he noted.
Though these obstacles would seem ominous, analysts such as Hynes are still cautiously optimistic about UnitedHealth’s long-term survival. “The stock is trading like the government’s going to kick them out of Medicare and Medicaid, and the likelihood of that is zero, in my view,” she stated, suggesting that fears surrounding regulatory action are overblown.