UnitedHealth Group stock gets slammed as health costs soar

• UnitedHealth stock reels from medical cost ratio above 85% in Q3.
• 2025 outlook fails to live up to Wall Street expectations.
• Health insurer and care company beats Q3 consensus on top and bottom lines.
• Adjusted EPS, revenue rise 9% from a year ago.

UnitedHealth Group (UNH) stock, the largest holding in the Dow Jones Industrial Average (DJIA), sank 9% on Tuesday after the US’s largest health insurer reported costs in the third quarter exceeding prior guidance.

The medical care ratio, which compares insured costs compared to paid premiums, rose to 85.2% for the quarter ending in September. This compares noticeably with the quarter a year ago in which UnitedHealth saw a medical care ratio of 82.3%. Wall Street had expected a ratio of 84.4% in Q3.

The Dow Jones index slipped by half a percentage point on the news and was helped lower by another earnings report from Johnson & Johnson (JNJ). Earnings from Dow member Goldman Sachs (GS), however, helped the Wall Street bank rise 3%. The DJIA reached a fresh all-time high on Monday. 

UnitedHealth stock earnings news

Despite the negative news on rising healthcare costs, UnitedHealth’s top and bottom lines for Q3 were quite impressive. The Minnesota-based insurer, which also has a managed care arm, reported an adjusted earnings per share (EPS) beat of 1.7%. Revenue in the quarter also beat the average Wall Street projection by 1.5%.

UnitedHealth earned $7.15 in adjusted EPS on revenue of $100.8 billion. This amounts to a 9% YoY rise in both adjusted EPS and revenue.

The UNH stock performance is affected by management’s full-year 2024 outlook of $15.50 to $15.75 per share in net income, which reflects charges to its South American operations and an expensive cyberattack that affected its Change Healthcare unit. That latter unit accounts for at least $0.75 per share in costs.

One good sign for shareholders is that the operating cost ratio fell from 15% one year ago to 13.2% in the quarter.

The UnitedHealthcare insurance unit saw revenues climb 7.2% YoY, while its healthcare services unit, Optum, saw a gain of 12.6% YoY.

Management lowered its full-year adjusted EPS outlook to between $27.50 and $27.75, down from an earlier top range of $28.00. Its 2025 guidance, however, really shocked its audience. Management just gave the round number of $30.00 for adjusted EPS in 2025. Bloomberg's data suggests that analysts expected something closer to $31.16.

UnitedHealth stock forecast

UNH stock has broken through its 100-day Simple Moving Average (SMA) on Tuesday. This is a significant happening. It means that the market will now look to the 200-day SMA near $525 as the nearest support. That level comports with a range high from May in its vicinity.

Longer-term support between $465 and $480 that held up most of the time in the first half of the year also comes into view. The lowest price of the year at $436.38 from April 12 can probably be disregarded. Healthcare premiums can be adjusted, and the overall business is extremely healthy in terms of turnover.

The market will forget about this earnings report once UNH stock overcomes the 50-day SMA, which is currently near $583.

UNH daily stock chart