UnitedHealth's Q3 Beat Isn't Stopping the Bleed: Hold or Fold Now?

UnitedHealth Group Incorporated UNH has tumbled 9.6% since reporting third-quarter 2025 results, a surprising slide given the company’s earnings beat and a raised full-year outlook. Despite management’s reassurances, investors remain fixated on one thing: margin pressure. Concerns over stubbornly high medical costs and reimbursement limits continue to haunt sentiment, even though much of this risk was already baked into expectations.

In other words, Wall Street is not questioning what just happened; it is questioning what comes next. The key worries are clear:

• Will medical costs rise faster than pricing and reimbursement can adjust, further squeezing margins? 
• Can growth, especially in the crucial Medicare Advantage and Optum businesses, sustain momentum amid membership losses and regulatory turbulence?
• And does the upgraded guidance truly offset the structural cost pressures still hanging over the business?

Dissecting UNH’s Q3 Performance and Market Reaction

UnitedHealth’s third-quarter results were a mixed bag. Revenues climbed 12% year over year to $113.2 billion but narrowly missed the consensus estimate by 0.2%. The top line looked robust, but adjusted earnings per share (EPS) of $2.92 — while beating expectations by 6.2% — represented a steep 59.2% decline from the prior-year quarter. That drop quickly reignited investor worries over contracting margins and a cost structure that still appears too heavy.

Management, however, remains optimistic. UnitedHealth has repriced most of its risk-based businesses, a move expected to drive margin recovery across most lines next year, with the notable exception of Medicaid, where current cost trends and rate environments remain unfavorable. Executives also project that more disciplined pricing will restore the company to healthy earnings growth in 2026.

Still, patience may be wearing thin. The company expects its Medicare Advantage membership to decline by around one million members next year due to plan adjustments. In the commercial market, most employer insurance businesses are being repriced for 2026, but management doesn’t expect its margins to normalize until 2027. That’s a long wait for investors already enduring a 2025 slump.

UnitedHealth also expects Affordable Care Act enrollment to fall by roughly 67%, primarily due to service area reductions tied to unsustainable rate structures. The company is leaning on automation and machine learning to lower costs and boost operational efficiency.

At Optum, UnitedHealth’s diversified healthcare services arm, the company anticipates a nearly 10% decline in Optum Health’s value-based care membership in 2026, owing to product and market exits, before returning to growth in 2027. Optum Rx, meanwhile, posted a solid 16% year-over-year revenue gain, but operating margins slipped 60 basis points, underscoring the broader theme: growth is not the problem, profitability is.

For further details, see UnitedHealth Q3 Earnings Beat on Rising Commercial Membership.

Where the Estimates Stand?

The Zacks Consensus Estimate for 2025 EPS sits at $16.29, encouraging, given the current turbulence, but still 41.1% below last year’s level. For 2026, EPS is projected to rebound to $17.66, marking an 8.4% improvement.

That recovery hasn’t been enough to rekindle enthusiasm. Even though there have been nine upward estimate revisions for 2025 and eight for 2026, investors remain fixated on margins and the regulatory environment rather than top-line growth. Consensus revenue projections call for 12% growth in 2025 and 3.4% in 2026.

UnitedHealth’s recent track record has not helped its case either. Over the past four quarters, the company has missed estimates twice and beaten twice, producing an average earnings surprise of negative 2.3%. That inconsistency could not improve investor skepticism.

Humana Inc. Price, Consensus and EPS Surprise

Humana Inc. price-consensus-eps-surprise-chart | Humana Inc. Quote

UNH’s Price Slide in Context

Including its post-earnings decline, UNH shares have dropped 34.6% year-to-date, a steeper fall than the industry’s 29% slide. Peers like Molina Healthcare, Inc. MOH and Centene Corporation CNC have fared even worse, plunging 47.9% and 40.4%, respectively. The contrast with the broader market is stark: the S&P 500 has surged 18.1% over the same stretch.

Price Performance – UNH, MOH, CNC, Industry & S&P 500

Even after this pullback, UnitedHealth is not exactly a bargain. The stock trades at a forward price-to-earnings (P/E) ratio of 18.98X, still above the industry average of 15.29X. In comparison, Molina and Centene look more attractively priced at 9.92X and 12.69X, respectively.

Mounting Headwinds for UnitedHealth

The real drag on UnitedHealth’s stock remains its deteriorating medical care ratio (MCR), the share of premium revenue used to pay claims. The ratio climbed from 83.2% in 2023 to 85.5% in 2024 and surged again to 89.9% in the third quarter of 2025. The higher the MCR, the thinner the profit margin and investors are clearly taking note.

Adding to the unease are regulatory and legal challenges. The U.S. Department of Justice continues to probe the company’s Medicare billing practices, reimbursement policies, and Optum Rx’s pharmacy benefit management operations. There are also lingering questions about how UnitedHealth handled loans to healthcare providers following the 2024 Change Healthcare cyberattack.

Moreover, President Donald Trump’s “most-favored nation” executive order could upend the traditional pharmacy benefit management model, potentially altering how Optum Rx negotiates and manages drug pricing.

A Long-Term Case Still Standing

Despite the current turbulence, UnitedHealth remains a powerhouse in U.S. healthcare. Its unmatched scale, diversification and massive customer base provide resilience that few peers can replicate. Management is taking measurable steps to restore stability and protect long-term earnings power.

Structurally, the tailwinds remain intact. U.S. healthcare spending continues to rise, supported by an aging population and the growing prevalence of chronic diseases, trends that inherently favor integrated players like UnitedHealth. While eligibility redeterminations and reduced government subsidies could weigh on near-term membership, demand for high-margin, fee-based commercial plans is expected to strengthen.

Even amid the turmoil, UnitedHealth has remained disciplined in shareholder returns. The company distributed $5.9 billion in dividends and executed $5.5 billion in buybacks during the first nine months of 2025. However, it did not make any repurchases after the second quarter.

Should You Buy the Dip Now?

UnitedHealth’s third-quarter beat did little to shift the market’s mood, and for good reason. Beneath solid headline numbers lie persistent cost pressures, membership softness and mounting regulatory uncertainty. The margin story may take longer to repair than management suggests, and investors are not convinced that the pricing tweaks are enough to offset the utilization creep yet.

Still, UnitedHealth’s diversified model, strong balance sheet and dominant market position offer a firm foundation for long-term investors willing to wait out the storm. With sentiment turning defensive and valuation still above peers, the stock looks vulnerable to further downside if medical costs remain elevated. For now, UnitedHealth is not broken, but it is no longer the market’s comfort stock either. A neutral stance feels justified until execution catches up to expectations and investors see tangible relief. It currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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

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