Just recently, UnitedHealth Group, the largest US healthcare company as measured by revenue, had a stunning one-day sell-off on April 17. Consequentially, its stock price nosedived about 50% from its peak all-time high. This precipitous drop has alarmed institutional shareholders causing a flood of downgrades by Wall Street analysts. Even amid these very worst case scenarios, Wednesday proved to be a day of recovery on the markets for the beleaguered company.
That sell-off was in the context of UnitedHealth’s announcement today that it was pulling back its 2025 earnings guidance. The company reduced its adjusted EPS (earnings per share) midpoint estimate from $29.75 down to $26.25. This modification corresponds to a 12% drop in anticipated performance. This downward adjustment accounts for persistent risks and uncertainties in the healthcare industry, especially the rate of medical utilization.
Leadership Changes and Market Reactions
To restore some stability to the crown jewel of the Fortune 500, UnitedHealth quickly moved to quash the revolt, anointing Stephen Hemsley, then Chair, as the new CEO. The leadership transition does match up, timing-wise, with the company’s recently-updated corporate guidance. This change has led to analysts’ speculation about how this might affect future production.
Joanna Gajuk, an analyst at Bank of America (BofA), welcomed news, especially as it relates to safety and environmental compliance.
“We view the decision to pull the 2025 guide as a combination of uncertainty around the prevalence and persistence of the higher [medical] utilization as well as giving the incoming CEO additional time to become comfortable around the 2025 guidance he is now responsible for.” – Joanna Gajuk
It’s a common feeling among investors these days. Investors are intently interested in seeing how Hemsley addresses the myriad challenges facing UnitedHealth in the years to come.
Despite colorful headlines, the market’s reaction to these developments has been lukewarm. After Tuesday’s nasty reversal, UnitedHealth’s stock appears to have found support at the 161.8% Fibonacci extension around $313. Analysts have had their eyes glued to this level. An additional decline might drive the stock to retest its next Fibonacci extension near $197.78.
Analyst Downgrades and Future Projections
Wall Street analysts were quick to react to UnitedHealth’s lowered guidance. Gajuk has cut her price target for UnitedHealth stock from $560 to $350. She lowered her price target from Buy to Neutral. Even amid this gloomy threat outlook, a number of other analysts appeared to adopt a much sunnier disposition.
Analysts from Keybanc, Baird Equity Research, Raymond James, and Deutsche Bank all reiterated a bullish stance on UnitedHealth. Even with the lower price environments, they are bullish. In short, these firms are optimistic that recovery is still possible. They are counting on it occurring at a much more moderate rate than we previously assumed.
Gajuk’s estimates of UnitedHealth’s EPS in 2025 are $21.00 on the low end, and as high as $23.63 on high end. Her analysis is forcing us to consider changing our guidance once more. Specifically, she interprets the suspension of guidance as an early warning that 2020 earnings could fall another 10%-20% below our already trimmed estimates.
Looking Ahead: A Path to Recovery
Even with all the recent chaos, UnitedHealth is still aiming to get back on track toward $600 billion in growth by 2026. The company has subsequently guided an adjusted EPS range of $21.00 to $23.63 for that fiscal year. This outlook demonstrates a seriousness and dedication to move forward through present uncertainties with an eye towards eventual long-term stability.
With new leadership in place, UnitedHealth is on the right track to begin this journey and institutional shareholders will be keeping a close eye. The ability of Stephen Hemsley to address ongoing challenges and restore confidence among investors will be critical in determining the company’s trajectory moving forward.