Warren Buffett announced on Friday that the company he has been acquiring recently is the controversial United Healthcare. The past year hasn't given UnitedHealth investors much reason for satisfaction, but following this announcement, they are regaining faith in the company. The stock responded with a 14% surge during Friday's session. This news also spread positive sentiment to other companies in the sector, where notable gains were observed during the last session.
Why did the company lose significant value?
The company's troubles began in December 2024 when the CEO was fatally shot on the streets of New York. Losing a CEO under such drastic circumstances is enough to provoke a decline in valuations, but what truly sank the company were the facts about its conduct that emerged during the investigation.
As it turned out, the murder was not a robbery but was allegedly committed by a former client so dissatisfied with the company's service quality that he resorted to such an act.
The real troubles for the company began when a large amount of negative information started pouring in. Among other things, it was revealed that there was an ongoing antitrust investigation against the company, which the then-CEO had concealed until he sold his UHC shares. Additionally, the practice of "Delay, Deny, Defend" came to light, involving systematically denying clients the benefits they were entitled to, hoping that physically and financially exhausted clients would be unable to effectively contest these decisions. The sheer volume of negative reports against the company led to a collapse in sentiment and valuations. In 2025, the company lost as much as 62% of its value from its peak.
Source:Xstation
From a technical standpoint, the last low at the 235 level will serve as support. Potential resistance during upward movements will be the recent openings of downward gaps. Particularly challenging to overcome might be the second zone around 486, which coincides with the lower limits of the consolidation channel from the beginning of this year.
Upcoming changes in the company and the prospect of improvement?
The company has tried, with varying success, to manage multiple crises simultaneously. UnitedHealth's results have been disappointing in the last two quarters. Revenues and profits have noticeably declined after several years of continuous growth. This may likely be due to internal chaos, the boycott of the company in light of accusations, and the partial abandonment of the previously mentioned practice of denying benefits. But is the level of investor pessimism towards the company justified? Everything indicates that the company has fallen to such levels that its valuations have become very attractive. Not only did Warren Buffett, through his company Berkshire Hathaway, decide to purchase shares worth $5 million, but the well-known investor from the financial crisis, Michael Burry, also made his purchase.
What is the company's financial situation? Despite recent troubles, United can still boast a combination of high profit margins compared to the sector—around 5%, the highest regularly paid dividend yield—over 2%, a reasonable P/E ratio of 13, and low debt compared to competitors, with a debt-to-equity ratio of only 70%. Additionally, United benefits from a significant market share in the U.S. insurance sector, amounting to 33%.
UnitedHealth Group surpasses the competition in terms of projected revenues.
Source: Bloomberg Finance LP
Opportunities and Threats
The company has been significantly undervalued. To a large extent, this undervaluation has the characteristics of more or less justified panic, not fully supported by much weaker financial data. The recent decline in valuation is based on potential risk factors that have not yet materialized. Despite recent controversies, the company's situation is stable, and larger players seem convinced that the worst moments are behind it. It's worth remembering that companies in the healthcare services sector are typically defensive, providing above-average growth during periods of economic downturns or crises. It is possible that Warren Buffett and Michael Burry see threats to the markets and the economy that other investors have not yet recognized. On the other hand, this may result from a large correction not justified by financial data and future performance prospects.
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