Investors Await Q1 Report

4월 17일

Key arguments in support of the idea.

▪ UNH stock has come under pressure from a series of adverse events,
though Q1 earnings may improve investor sentiment regarding further
UNH business growth potential.

▪ A good moment for buying, both fundamentally and technically.

Investment Thesis

UnitedHealth Group (UNH) engages in the provision of health insurance,
software, and related consulting services. UNH is the largest provider of
healthcare plans in the US.

In Early 2024, UNH’s Stock Came Under Pressure from Several
Adversities at Once. First, it is a cyberattack on Change Healthcare
services, that led to a temporary freeze on payments from medical
organizations. At the time of finalizing this report, UnitedHealth informed
that services were restored, and that it did not expect big implications for
financial results. However, market participants fear a one-time negative
impact on profitability in Q1 2024.

Shortly after the cyberattack, it was reported that the US Department of
Justice had initiated an antitrust investigation for examining the strength of
relationship between UnitedHealth’s insurance and medical business
divisions. The impact of the investigation is uncertain, and we do not
believe it to influence the stock in the short term.

Investors Were Disappointed by CMS’ Final Decision on Medicare
Advantage (MA) Payment Rates. On April 2, MA plan rate rises for 2025
compared to 2024 became finally known. The payout rate remained at the
proposed level of 3.7% y/y, disappointing investors looking for a bigger
increase. This caused a negative market reaction: UNH, the largest player,
ended the April 2 trading with a 9.3% drop. Some other major stocks
reacted that day accordingly: HUM (-13.4%), CVS (-7.2%), ELV (-3.3%).
The worsened MA business revenue expectations for 2025 are already
reflected in prices. However, the Optum segment’s organic growth
(OptumHealth, OptumInsight, and OptumRx) remains a strong point of the
Company and may support its Q1 2024 results that will be released on
April 16.

Expectations for Q1 Report. We think that investors will be focused on the
guidance for 2024. Management’s confirmation or improvement of the
existing guidance could dispel investor worries. Besides, we expect a
detailed commentary on the impact of the cyberattack and the MA rate
decision on financial results.

Now Is a Good Time to Buy. The P/E NTM ratio has decreased to 15.8,
which is lower than the Company’s all-time average of 18.8. The RSI has
dropped below 30 points, signaling a likely reversal. We consider UNH
shares’ current weakness as a good opportunity to buy, assuming that (1)
the impact of the approved MA 2025 rate is already reflected in prices, (2)
the cyberattack will have a one-time insignificant implication for UNH, and
(3) there is still a high demand in the MA market, and UNH remains the
largest and growing provider of healthcare plans.

The target price for UNH over a 2-month horizon is $495, which
corresponds to P/E NTM of 18. We recommend Buying and setting a
Stop Loss at $415.