Bear of the Day: UnitedHealth Group (UNH)

UnitedHealth Group operates as a diversified healthcare company in the United States. The company offers consumer-oriented health benefit plans and services. It also provides care delivery and management, wellness, and health-related financial services to patients.

Founded in 1974 and headquartered in Minnesota, UnitedHealth Group delivers a full spectrum of health benefit programs for individuals, employers, military service members, retirees, as well as Medicare and Medicaid beneficiaries.

Why UNH Stock Should Be Avoided

The Buffett-led Berkshire Hathaway recently revealed a stake in the struggling company. Though it’s easy to understand why, as health insurers share many of the underlying characteristics that make insurance an attractive industry to Buffett. Recurring insurance premiums combined with a sizeable dividend fit the Berkshire model.

Yes, UnitedHealth Group boasts a large and diverse membership base within the managed-care market. And yes, the company has acquired a number of competing healthcare providers over the years and also built its prescription drug business through OptumRx.

However, these positives mask deeper structural, operational, and regulatory vulnerabilities. UNH stock has plummeted about 30% year-to-date, reflecting persistent risks that are likely to erode long-term value.

The U.S. Department of Justice is conducting a criminal investigation into potential Medicare fraud, including allegations of upcoding—making patients appear sicker to secure higher reimbursements. This probe, alongside whistleblower cases, threatens fines, operational restrictions, or even structural changes like divestitures.

UnitedHealth’s core business has been hammered by surging medical expenses, leading to repeated downward revisions in earnings guidance. The company's medical care ratio—a key metric measuring claims costs as a percentage of premiums—hit 89.4% in recent quarters, far above historical norms and compressing margins significantly. Management has acknowledged underestimating care activity and cost trends, resulting in "outsized growth" that overwhelmed pricing adjustments.

For fiscal 2025, UNH slashed its EPS outlook to $16 per share, effectively signaling no growth until 2026, with recovery dependent on premium hikes and cost controls. Medical cost inflation remains a persistent threat, with trends potentially exceeding 7.5%-10% annually due to factors like nonemergency procedures and broader healthcare utilization.

The Zacks Rundown

A Zacks Rank #5 (Strong Sell) stock, UnitedHealth Group UNH is a component of the Zacks Medical – HMOs industry group, which currently ranks in the bottom 5% out of approximately 250 Zacks Ranked Industries. As such, we expect this industry group as a whole to underperform the market over the next 3 to 6 months, just as it has over the past year:

Stocks in the bottom tiers of industries can often be intriguing short candidates. While individual stocks have the ability to outperform even when they’re part of a lagging industry, the inclusion in a weaker group serves as a headwind for any potential rallies and the journey forward is that much more difficult.

UNH shares have been underperforming the market over the past year by a wide margin. After a brief upward move following the announcement of the Berkshire stake, the stock represents a compelling short opportunity as we head further into the final stretch of 2025.

Recent Earnings Misses & Deteriorating Outlook

UnitedHealth Group has fallen short of earnings estimates in two of the past three quarters. Back in July, the company reported second-quarter earnings of $4.08 per share, missing the Zacks Consensus Estimate by -15.7%.

UNH has posted a trailing four-quarter average earnings miss of -3.3%. Consistently falling short of earnings estimates is a recipe for underperformance, and UNH is no exception.

The healthcare giant has been on the receiving end of negative earnings estimate revisions as of late. Looking at the current quarter, analysts have slashed estimates by a whopping -45.12% in the past 60 days. The Q3 Zacks Consensus EPS Estimate is now $2.87 per share, reflecting negative growth of nearly -60% relative to the year-ago period.

Falling earnings estimates are a huge red flag and need to be respected. Negative growth year-over-year is the type of trend that bears like to see.

Technical Outlook

As illustrated below, UNH stock is in a sustained downtrend. Notice how the stock recently hit a 52-week low in August, widely underperforming the major indices. Also note that shares are trading below a downward-sloping 200-day (red line) moving average – another good sign for the bears.

UNH stock has experienced what is known as a “death cross,” whereby the stock’s 50-day moving average (blue line) crosses below its 200-day moving average. Shares would have to make an outsized move to the upside and show increasing earnings estimate revisions to warrant taking any long positions. The stock has fallen nearly 30% this year alone.

Final Thoughts

A deteriorating fundamental and technical backdrop show that this stock is not set to make its way to new highs anytime soon. The fact that UNH is included in one of the worst-performing industry groups adds yet another headwind to a long list of concerns.

A history of earnings misses and falling future earnings estimates will likely serve as a ceiling to any potential rallies, nurturing the stock’s downtrend.

Berkshire's investment highlights UNH's scale and cash generation potential, but it does not mitigate the cascade of risks—from cost inflation and legal probes to operational failures and regulatory threats. The stock's 30% decline in 2025 is not an overreaction, but a rational response to a company facing challenges in a scrutinized industry.

Investors seeking stability should avoid UNH, as short-term catalysts like premium hikes may falter amid broader headwinds. It's a value trap best sidestepped until clarity emerges.

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

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