UnitedHealth Finds Its Stars, Soars 8.6% as Humana Trips on Cut Points

UnitedHealth Group Incorporated UNH jumped 8.6% yesterday, after signaling confidence in its Medicare Advantage (MA) star ratings outlook for next year, easing concerns about recent setbacks. Stronger ratings mean larger financial incentives for the insurer.

UNH estimates that 78% of its MA members will be enrolled in plans with quality ratings of 4 stars or higher next year. This goal, earlier outlined by former CEO Andrew Witty this summer, aligns with its past track record, something many investors had worried it might fall short of achieving.

Medicare Advantage, federally funded and run by private insurers, has become more challenging in recent years as seniors are using more medical services than expected, driving up expenses and pressuring margins. Even so, a Kaiser Family Foundation study projects that CMS will distribute $12.7 billion in Medicare Advantage bonus payments in 2025, an increase from $11.8 billion awarded in 2024.

UnitedHealth is also expected to reiterate its 2025 adjusted EPS outlook of $16, which it refreshed on July 29. Yet the company’s hurdles persist. It remains under Justice Department investigation for Medicare billing, reimbursement practices, and Optum Rx’s PBM operations. In addition, questions have mounted over its handling of loans to healthcare providers in the aftermath of the 2024 Change Healthcare cyberattack, with lawmakers contending that the company has been overly aggressive on repayment terms.

Alongside UnitedHealth, CVS Health Corporation CVS and Centene Corporation CNC also saw their shares rise yesterday. Both companies have broad exposure to Medicare Advantage and have gained from optimism around industry prospects. At the same time, reports circulated indicating that bonus qualification thresholds, known as “cut points,” have become more difficult to achieve. Humana Inc. HUM declined 12% yesterday, on worries about meeting these tougher benchmarks, per Bloomberg. Because Medicare star ratings are so closely linked to profitability for large insurers, any tightening in criteria can unsettle the sector. Greater clarity is expected once CMS issues its final ratings in October.

UnitedHealth’s Price Performance, Valuation and Estimates

Thanks to recent jumps in share price, UNH’s year-to-date decline was reduced to 31.2%. The industry fell 28.9% during this time.

From a valuation standpoint, UnitedHealth trades at a forward price-to-earnings ratio of 20.33, up from the industry average of 15.38. UNH carries a Value Score of C.

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