UnitedHealth Group (NYSE:UNH) stock plunged 17% on Tuesday, extending a rough stretch in what’s shaping up to be a brutal 2025. With this latest drop, the stock has now cratered 38% since the start of the year.
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Investors’ negative reaction stemmed from the company announcing that former CEO Stephen Hemsley is returning to lead the company after current chief executive Andrew Witty stepped down unexpectedly. The company attributed Witty’s immediate departure to “personal reasons.”
Moreover, the healthcare giant also suspended its full-year guidance, citing a continued rise in care activity that now extends to more benefit types than in the first quarter. Meanwhile, medical costs for many newly enrolled Medicare Advantage members at UnitedHealthcare remained higher than projected. Recall, the company had already lowered its profit outlook less than a month ago.
Witty, who took on the CEO role in 2021, led the company through several challenging events, including the fallout from last year’s killing of Brian Thompson, the head of its insurance division. Hemsley, who has been the company’s executive chair, previously served as CEO from 2006 to 2017 and has been with UnitedHealth in various senior roles since the late 1990s. He will continue to serve as board chair.
Reacting to the shake-up, Bernstein analyst Lance Wilkes described the move as a “proactive step” in response to what he called a “combination of operational missteps and policy pressures.”
“Steve Hemsley was the COO during the last big turnaround of UNH in 1998, and helped lead the turnaround which set the stage for creation of Optum and 20 yrs of growth,” Wilkes went on to say. “We expect Hemsley will be a temporary CEO for 1-2 years while they reprice the MA business and identify a long term CEO.”
As for the mounting cost pressures, Wilkes pointed to several potential drivers: shifts in Medicare Advantage risk coding, a push for more follow-up visits, likely increases in specialty drug use linked to the Part D redesign, and a possible loosening of prior authorization and claims controls – all of which could be amplifying medical expenses.
“We see these as primarily company specific, but could relate to MA sector pressures as Part D and risk coding environment would be impactful to other MA plans,” the analyst further said.
Down to business, what does all of this ultimately mean for the stock? Wilkes rates UNH an Outperform (i.e., Buy), along with a $594 price target. Should the figure be met, investors will be sitting on returns of an impressive 89% a year from now. (To watch Wilkes’ track record, click here)
Most of Wilke’s colleagues agree with his thesis; the stock claims a Strong Buy consensus rating, based on a mix of 22 Buys vs. 3 Holds. Going by the $559.13 average price target, the shares will appreciate by ~78% in the months ahead. (See UNH stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.