UnitedHealth's Misdiagnosis: Can Berkshire's Bet Spark a Recovery?

Core Insights - UnitedHealth Group Incorporated (UNH) is facing significant pressure due to underestimating medical cost trends, leading to eroded margins and investor concerns [1][2] - Medical costs increased nearly 16% in the first half of 2025, following a 9.2% rise in 2024, with the cost ratio climbing from 83.2% in 2023 to an expected 89.4% by year-end 2025 [1][7] - The company has revised its EPS outlook down to at least $16, with earnings growth not anticipated until 2026 [2][7] Financial Performance - UNH missed earnings estimates in both quarters of 2025 and has seen a significant drop in its EPS outlook from $26–$26.50 to at least $16 [2][7] - The Zacks Consensus Estimate for 2025 earnings is projected at $16.21 per share, indicating a 41.4% decline from the previous year [10] Market Reaction - Despite the turmoil, Warren Buffett's Berkshire Hathaway purchased over 5 million shares of UNH, valued at approximately $1.57 billion, which spurred additional buying from other investors [3] - UNH shares are down 39.7% year-to-date, which is a steeper decline compared to the industry average of 30.8% [6][7] Industry Context - Peers such as Centene Corporation (CNC) and Elevance Health, Inc. (ELV) are also experiencing challenges due to rising medical costs, leading to significant cuts in their earnings guidance for 2025 [5] - Centene has reduced its adjusted EPS outlook to $1.75 from $7.25, while Elevance has lowered its forecast to $30 from a previous range of $34.15–$34.85 [5] Valuation Metrics - UNH currently trades at a forward price-to-earnings ratio of 17.87, above the industry average of 14.96 [9] - The stock carries a Zacks Rank 5 (Strong Sell), reflecting the current market sentiment [13]