TLDR
- Wolfe Research raised UnitedHealth Group price target to $375 from $330 while maintaining an Outperform rating
- The firm projects earnings power of approximately $30 per share by 2028/2029 based on updated long-term targets
- UnitedHealthcare’s operating margin dropped to 2.1% in Q3 from 5.6% last year due to surging Medicare costs
- Company plans to raise premiums by average 25% for ACA exchange policies and withdraw from unprofitable states
- Management raised full-year earnings guidance to $16.25 per share and targets 13% to 16% long-term annualized growth
UnitedHealth Group received a vote of confidence from Wolfe Research on Wednesday. The firm lifted its price target to $375 from $330 while keeping its Outperform rating intact.
UnitedHealth Group Incorporated, UNH
The stock currently trades at $324.54, meaning the new target represents upside potential of roughly 15%. Other analysts have set price targets ranging even higher, with some reaching $440.
Wolfe Research sees a clear path forward for UNH. The firm believes the healthcare giant can restore target margins across its UnitedHealthcare insurance segment. This margin recovery stands as the critical factor for stock price appreciation and multiple expansion.
The research firm’s confidence stems from specific numbers. They project earnings power of about $30 per share by 2028 or 2029. This forecast incorporates UnitedHealth’s updated long-term targets across three key areas: Optum Health, Medicare Advantage, and Medicaid.
Even in a less optimistic scenario, the math works. Wolfe Research calculates that earnings could reach $27 per share in 2028 through UnitedHealthcare margin recovery alone. This assumes Optum Health and Insight don’t hit their target performance levels.
The Margin Problem
The margin situation at UnitedHealthcare has gotten tight. Operating margin fell to 2.1% in the third quarter, down from 5.6% in the same period last year.
Seniors using Medicare Advantage plans sought far more care than expected this year. The surge in healthcare utilization drove costs higher and squeezed profitability across the insurance business.
UnitedHealth isn’t sitting still. The company laid out an aggressive plan to stabilize and improve margins through premium increases and strategic retreats from unprofitable markets.
Premium hikes are coming fast. UnitedHealthcare plans to raise rates by an average of 25% across the 30 states where it offers ACA exchange policies. The company is also pulling out of states where it can’t negotiate favorable pricing.
Management expects these moves will cost them customers. Enrollment in ACA exchange policies could drop by as much as two-thirds.
Medicare Advantage Adjustments
The Medicare Advantage business faces similar changes. Premium increases there will likely result in the loss of up to 1 million members next year.
About 400,000 of those individuals are expected to switch to cheaper coverage from competitors. UnitedHealth is making a calculated trade: fewer members in exchange for better margins on those who remain.
The company currently maintains a gross profit margin of 19.7% and return on equity of 18%. Management raised full-year earnings guidance from $16.00 per share to $16.25 during the third-quarter report.
UnitedHealth targets long-term earnings growth between 13% and 16% annually. Add the current dividend yield of 2.7%, and total returns could reach the high teens.
The stock trades just above 20 times updated earnings guidance. If the company hits its growth targets, that produces a PEG ratio between 1.25 and 1.50.
Recent developments include the appointment of Dr. Scott Gottlieb, former FDA Commissioner, to the company’s Board of Directors. The company also announced a cash dividend of $2.21 per share, payable December 16 to shareholders of record by December 8.
Other firms have raised their targets too. Bernstein increased its price target to $440, while RBC Capital moved its target to $408 from $286. Both maintained Outperform ratings.
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