Shootings, fraud investigation and a cyberattack: UnitedHealth goes from record highs to a 50% drop in stock price

In just six months, UnitedHealth has gone from being a safe haven on Wall Street to one of the biggest stock market crashes in the healthcare sector. The world's largest insurer has lost more than $287 billion in capitalization since its all-time high at the end of last year, dragged down by a perfect storm of internal crises and structural challenges. In that time, the company has experienced the murder of a top executive, been embroiled in federal investigations for allegedly defrauding the U.S. government and suffered the fallout from a cyberattack that cost it billions. Recently, the resignation of its CEO after poor results has caused the stock to plunge. All this, while doubts are growing about the sustainability of its business model.

On November 11, 2024, UnitedHealth reached its all-time high on the stock market: $625 per share, giving it a market capitalization of $540 billion. It was by far the most valuable company in the global healthcare sector and one of the largest in the S&P 500, the index of the largest listed companies in the United States. To put it in context, Inditex, Spain's largest listed company, is today worth about $152 billion, three times less. But that milestone was only the prelude to a nosedive. Just three weeks later, on December 4, the CEO of UnitedHealthcare's insurance division, Brian Thompson, was shot dead in midtown Manhattan. Although this was an event unrelated to the company's operations and business, the shock and reputational impact directly affected the stock price.

The situation was exacerbated when the Wall Street Journal revealed in February that the U.S. Department of Justice was investigating UnitedHealth for alleged fraudulent practices in the billing of services covered by Medicare Advantage, a health insurance program offered by private companies but including public coverage. The main accusation is that the company systematically inflated treatment costs, billing the government for more expensive services than necessary. In addition, its division specialized in pharmacy management and drug distribution is being investigated for allegedly manipulating the prices of insulin and other treatments. These investigations have set off the alarms of antitrust regulators, who had already been keeping a close eye on the group's activities. These facts have also weighed on the stock as more information about the investigations is revealed.

Similarly, UnitedHelath has been damaged by a massive cyberattack on its Change Healthcare subsidiary, which is responsible for processing payments and authorizations for thousands of providers. Hackers stole millions of confidential records, including medical and health insurance data for more than 190 million people, which is half of the U.S. population. Although the incident occurred in 2024, the company has been updating the economic impact on its accounts. According to the latest estimates, the total cost of the cyberattack would reach $2.9 billion in 2024 and it has advanced more than $6.5 billion to hospitals and clinics to mitigate the impact of the attack and avoid disruptions in medical care.

An old acquaintance to redirect course

Beyond the one-off crises, analysts warn of an underlying problem: growing pressure on the business model from rising medical costs. U.S. President Donald Trump's plan to reduce drug prices is not helping either. Recently, UnitedHealth reported quarterly results well below market expectations and suspended forecasts for this year. After its CEO, Andrew Witty, called its accounts "unacceptable," the stock fell 22%. A few days later, Witty himself resigned.

"There remain a lot of questions about UnitedHealth. Over the past few days, we have had numerous conversations with investors trying to make sense of the first quarter results. The problem for us (and most) is limited to the Optum Health business unit [the health care division]. It's one of the toughest headwinds and sows the most doubt because it's the company's most valuable business. Investors are questioning the business model and long-term profitability. [Our initial impression is that this is an idiosyncratic problem for UnitedHealth," assess Barclays specialists.

To contain the damage, the board of directors has turned to Stephen Hemsley, UnitedHealth's historic board member from 2006 to 2017, considered the architect of the expansion that made the company a global leader. However, Hemsley's return has not been enough to quell the stock market bleeding: the shares accumulated a 53% drop from their highs, currently trading at around $308.

Despite the plunge, most analysts have faith in UnitedHealth's recovery. The Bloomberg consensus puts its price target at $431, which represents a potential upside of 57% from current levels. Of the 29 experts following the stock, 83% recommend buying and only one advises selling. "UnitedHealth is a leading company offering a variety of healthcare products and services [...] UnitedHealth is an attractive long-term investment opportunity given the industry backdrop, double-digit earnings per share growth rate, strong cash flow generation and sound capital deployment strategy," Mizhuo analysts note.

"We believe the negative revision was largely unexpected leading to the 22% share price decline. [...] We maintain our buy rating after one of the worst days in the stock's performance in history. We believe that between recent operational challenges and investor sentiment, this price represents a good opportunity to buy UnitedHealth stock. We continue to view the company as a high-quality defensive stock in the large-cap healthcare services space, even though it has been hit by a number of headwinds," they add in the same vein from Deutsche Bank.