Key Points
Shares of health insurer UnitedHealth Group have been underperforming for over a year.
This weakness, however, is arguably well deserved, reflecting subpar fiscal results.
Last quarter’s numbers suggest the company has figured out how to operate efficiently in the current environment.
After a tough past twelve months that at one point saw the stock down by more than half, UnitedHealth Group(NYSE: UNH) shareholders finally see a light at the end of the tunnel.
That's the takeaway from the response to today's news anyway. As of 11:59 a.m. ET Tuesday, shares of the health insurer are up 8% following the release of the company's fiscal first-quarter numbers, which are not only better than expected, but suggest the organization is on the road to recovery.
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Hints that a turnaround is taking hold
UnitedHealth turned $111.7 billion in revenue into an adjusted per-share profit of $7.23 for the three months ending in March. That's up 2% from its year-earlier top line of $109.6 billion, and three cents better than Q1-2025's bottom line of $7.20. And, both numbers topped analysts' expectations for sales of $109.6 billion and earnings of $6.57 per share.
The foreseeable future looks bright too. The insurer raised its full-year adjusted earnings guidance to more than $18.25 per share versus estimates of only $17.86, well up from last year's comparison of $16.35.
Importantly, the company is effectively managing the soaring costs of its customers' medical coverage, which have been weighing on the stock for over a year now. UnitedHealth's benefits ratio -- the amount of its revenue passed along to healthcare providers -- fell from 84.8% in the first quarter of last year to 83.9% this time around, rolling in well below analysts' expectation of 85.6%.
Image source: Getty Images.
At least some of the credit for this apparent turnaround goes to relatively new CEO Stephen Hemsley, who retook the helm of the struggling company in the middle of last year after a handful of leadership changes following his first time stepping down from the role in 2017.
Not a bad bet
One solid quarter does not make a trend. All big trends start as small ones though.
Better still, UnitedHealth Group's going to be facing even less near-term fiscal pressure than feared just a few months ago. The federal government's 2027 payment rates for Medicare Advantage health insurance plans like UnitedHealth's are more generous than first suggested.
Arguably more important to interested investors, while it's still apt to be volatile, with a forward-looking price/earnings ratio of less than 20 and a forward-looking dividend yield of 2.7%, there's a case to be made for taking a swing on this beaten-down stock.
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James Brumley has no position in any of the stocks mentioned. The Motley Fool recommends UnitedHealth Group. The Motley Fool has a disclosure policy.
