What Happened?
Shares of health insurance company UnitedHealth (NYSE:UNH) fell 4.6% in the morning session after the company reported weaker-than-expected second-quarter earnings and issued a full-year profit outlook that fell significantly short of analyst expectations. The company's adjusted earnings per share for the quarter came in at $4.08, missing Wall Street's consensus of around $4.48. More critically for investors, the company reinstated its full-year guidance after suspending it in May. UnitedHealth projected at least $16 in adjusted earnings per share for 2025, a significant reduction from previous forecasts and far below the more than $20 analysts had anticipated. The primary driver for the poor performance was a surge in medical expenses. This was reflected in the company's medical care ratio, a key metric indicating the portion of premiums spent on care, which rose to 89.4%. UnitedHealth attributed the higher costs to medical trends outpacing pricing and the effects of reductions in Medicare funding.
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What Is The Market Telling Us
UnitedHealth’s shares are quite volatile and have had 16 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 3 months ago when the stock dropped 22.9% on the news that the company reported underwhelming first-quarter 2025 results as its sales and profits fell below Wall Street expectations. The real story was the sudden rise in health care activity among seniors in its Medicare plans, which pushed costs higher and hurt profits. Some of those activities were delayed visits dating back to the COVID period. As a result, while revenue grew 10% from the previous year, costs grew faster. This reflected in the medical care ratio, which ticked up, meaning more of each dollar went to covering claims, and the company expected the ratio to increase significantly in the near term. Guidance was the biggest concern. The new full-year earnings forecast came in well below what analysts had been expecting, mainly because the company saw its care (medical costs in its privately run Medicare plans) and funding issues lasting longer. Overall, this was a disappointing quarter. While top-line growth was decent, bottom-line pressures and reimbursement risk remain unresolved, clouding the earnings outlook.
UnitedHealth is down 47.2% since the beginning of the year, and at $266.59 per share, it is trading 57.4% below its 52-week high of $625.25 from November 2024. Investors who bought $1,000 worth of UnitedHealth’s shares 5 years ago would now be looking at an investment worth $869.26.
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