To The Moon

UnitedHealth Group is a stock in need of a second opinion. Trading at $353, down more than 40 per cent from its 52-week high, it sits at a valuation multiple of just 15 times earnings — modest for a company that still pulls in over $420 billion in annual revenue. The market is clearly pricing in lasting damage. I think the case is more nuanced. If Optum can recover margins, if Medicare Advantage scrutiny is contained, and if capital returns are deployed with conviction, then the climb back to $400 is achievable.

Networks align: Optum’s reach could redraw healthcare’s balance sheet

Optum’s margin pulse

Optum has become the engine that keeps $UnitedHealth(UNH)$ competitive. It now accounts for nearly half of operating earnings, yet recent quarters have been defined by cost pressures and service disruptions that dragged operating margins down towards 4–5 per cent. Investors have fixated on the downside, but here’s what I believe is under-appreciated: Optum’s data and technology services are growing faster than its pharmacy unit, tilting its model toward higher-margin, less commoditised revenue streams.

The timeline for stabilisation should begin to emerge as soon as Q3 2025, when service utilisation data filters through, with clearer evidence of margin expansion possible by early 2026. Even a modest 100–150 basis point recovery in Optum’s margin profile would add $2–3 to group EPS. At a 15–16 times multiple, that translates into $30–45 of share price potential. In other words, the bulk of the journey from $353 to $400 could come simply from Optum regaining efficiency. And because Optum’s operations are less tied to drug pricing than they once were, I see that recovery as a credible catalyst rather than wishful thinking.

Regulatory fever

The most pressing headwind is Medicare Advantage. Investigations into coding practices and risk-adjustment are weighing heavily on sentiment. The Department of Justice is not known for speed, and investors should expect scrutiny to stretch well beyond 18 months, perhaps two years or more. Anyone betting on a swift resolution risks disappointment.

But here’s the twist: regulatory pressure often raises barriers to entry rather than eroding them. Smaller insurers simply don’t have the compliance infrastructure or data analytics to meet the new oversight standards. Humana and Anthem are strong in Medicare Advantage, but neither has the diversified earnings base or the capital flexibility of UnitedHealth. So while scrutiny may cap short-term growth, it could ultimately entrench UnitedHealth’s market leadership. The company will need to guide conservatively, but investors shouldn’t confuse regulatory noise with structural weakness.

Capital discipline as medicine

Cash is where the recovery case gains credibility. UnitedHealth generated nearly $29 billion in operating cash flow over the past year, with free cash flow north of $27 billion. Against a market capitalisation of $320 billion, that gives management plenty of ammunition. Debt is manageable at around 75 per cent of equity, while cash on hand sits at $32 billion.

Dividends are yielding 2.5 per cent, above the five-year average of 1.5 per cent, and the payout ratio remains modest at 37 per cent. That means dividends can grow steadily without threatening balance sheet flexibility. More importantly, buybacks executed at current levels would be accretive. A 2–3 per cent annual reduction in the share count provides the scaffolding for EPS growth even before margins improve. Pair that with steady dividends, and investors get both downside protection and upside leverage.

Volatility under the microscope: UNH tests its trading range

Here’s the connection back to Optum: margin recovery in the services arm boosts free cash flow, which in turn allows management to lean harder into buybacks. Stronger buybacks then help offset the drag from regulatory conservatism in Medicare Advantage. This interplay — operational rebound feeding capital allocation — is the mechanism that can get the stock re-rated closer to $400.

Competitive diagnosis

Rivals like $Humana(HUM)$, $Elevance Health(ELV)$, and $CVS Health(CVS)$ have their strengths, but none can match UnitedHealth’s breadth. Humana is concentrated in Medicare Advantage and therefore more exposed to regulatory scrutiny. Elevance lacks a services division of Optum’s scale. CVS has successfully integrated Aetna, but its services footprint remains narrower than Optum’s, particularly in data and analytics. UnitedHealth’s mix of insurance, services, and technology is unique. In a sector facing increasing regulation and cost pressures, that diversity is an asset. If the industry is moving toward more integrated models, UnitedHealth is already years ahead.

Market fever: UNH lags rivals despite stronger long-term resilience

The road to $400

From today’s level, $400 requires a 13 per cent gain. To get there, I assume a 100 basis point recovery in Optum’s margins, translating into $2 EPS accretion, alongside a 2–3 per cent reduction in the share count from buybacks. That alone would push EPS growth into the high single digits. Apply a conservative 16 times multiple, and $400 becomes less a stretch goal and more a base case over the next 15–24 months.

The caveat is patience. Regulatory investigations will likely drag into 2027, but the market tends to discount outcomes well before final resolution, especially if free cash flow and Optum’s growth remain intact. $UnitedHealth(UNH)$ doesn’t need a heroic turnaround, just operational normalisation and consistent capital deployment.

Verdict

UnitedHealth is not without its headaches, but I view the current share price as overly pessimistic. The company’s diversified model, cash generation, and capital discipline make it uniquely positioned to weather regulatory storms. Optum’s margin recovery is the catalyst, Medicare scrutiny is the risk, and capital returns are the glue that ties the story together. In healthcare, as in investing, patience is often the cheapest medicine. For me, $400 looks less like a miracle cure and more like a realistic recovery target.

Momentum builds: the path to $400 is charting itself

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