UnitedHealth's Misdiagnosis: Can Berkshire's Bet Spark a Recovery?

UnitedHealth Group Incorporated UNH remains under heavy pressure after severely underestimating medical cost trends, a misstep that has eroded margins and rattled investors. Management has admitted to the problem, with expenses spiraling far faster than expected. Medical costs surged nearly 16% in the first half of 2025, following a 9.2% rise in 2024. The cost ratio — a measure of how much premium revenue goes to paying claims — climbed from 83.2% in 2023 to 85.5% in 2024, averaged 87.1% in the 1H25, and could approach 89.4% by year-end. The higher the ratio, the less profit UnitedHealth retains.

The strain has already shown up in earnings. UNH missed estimates in both quarters this year and cut its EPS outlook from $26–$26.50 at one time to at least $16. Adding to the drama, former CEO Stephen Hemsley returned to lead the company, replacing Andrew Witty, and management warned that earnings growth may not resume until 2026.

Yet, in the middle of this turmoil, UnitedHealth attracted an influential backer. Warren Buffett’s Berkshire Hathaway Inc. (BRK.B) disclosed a purchase of more than 5 million shares, a stake worth roughly $1.57 billion. It immediately triggered copycat buying from institutions and retail investors, reinforcing the perception that UNH’s beaten-down valuation offers long-term appeal.

Still, short-term risks loom large. UnitedHealth is facing $1.6 billion in potential settlement costs. Its Medicare Advantage billing practices are under criminal investigation by the DOJ. With legal scrutiny, public criticism, regulatory risks associated with PBMs and rising utilization trends, a true recovery may remain out of reach, at least for now.

How are Centene & Elevance Faring?

UnitedHealth’s peers are also reeling from surging medical costs, forcing guidance cuts for 2025. Centene Corporation CNC slashed its adjusted EPS outlook to $1.75, down from $7.25, and now projects its HBR to spike to 93.5% in the second half versus 89.4% last year. Still, Centene expects premium and service revenues to climb to $172 billion. Elevance Health, Inc. ELV reduced its adjusted EPS forecast to $30, below the prior $34.15–$34.85 range. Its benefit expense ratio is set to hit 90% in 2025, though operating cash flow should rise to $6 billion.

UnitedHealth’s Price Performance, Valuation and Estimates

Even after the Berkshire-driven bounce, UNH shares are still down 39.7% year to date, steeper than the industry’s 30.8% decline.

From a valuation standpoint, UnitedHealth trades at a forward price-to-earnings ratio of 17.87, still up from the industry average of 14.96. UNH carries a Value Score of B.

The Zacks Consensus Estimate for UnitedHealth’s 2025 earnings is pegged at $16.21 per share, implying a 41.4% drop from the year-ago period.

The stock currently carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research