Buying UnitedHealth Before Q4 Earnings? Cost Pressures a Red Flag

Core Viewpoint - UnitedHealth Group is expected to report a significant decline in earnings for Q4 2025, while revenues are projected to grow year-over-year, indicating a challenging financial environment for the company [1][2]. Financial Performance Estimates - The Zacks Consensus Estimate for Q4 2025 earnings is $2.09 per share, with revenues expected to reach $113.64 billion, reflecting a 12.7% increase year-over-year [1][2]. - For the current year, revenue estimates stand at $447.7 billion, indicating an 11.9% rise, while earnings per share are projected at $16.30, representing a 41.1% decline compared to the previous year [3]. Earnings History - UnitedHealth has beaten earnings estimates in two of the last four quarters, with an average surprise of negative 2.3% [4]. Earnings Prediction Model - The current model does not predict an earnings beat for UnitedHealth, as it has an Earnings ESP of 0.00% and a Zacks Rank of 3 (Hold) [5]. Revenue Growth Factors - Despite expected earnings declines, Q4 revenue growth is anticipated to be driven by a 16.4% increase in premium revenues, supported by contributions from the UnitedHealthcare division [9]. - Total domestic commercial customers are projected to grow by 1% year-over-year, with Medicare Advantage members expected to rise by 8.3% [10]. Cost and Margin Pressures - Rising medical costs are anticipated to increase overall expenses by nearly 18% year-over-year, leading to a medical care ratio of 92.2%, up from 85.5% in the previous year [12][13]. - Operating income from the Optum segment is expected to decrease by 36.6%, while UnitedHealthcare's operating income is projected to plunge by 90.9% [13]. Stock Performance and Valuation - UnitedHealth's stock has decreased by 33.1% over the past year, underperforming its industry and the S&P 500 [14]. - The stock is currently trading at 19.56 times forward 12-month earnings, above the industry average of 15.81 times [18]. Management and Investor Sentiment - The return of former CEO Stephen Hemsley and his significant stock purchase signal management's confidence, while Berkshire Hathaway's $1.57 billion investment suggests potential long-term value [21]. - The upcoming earnings report is critical for assessing trends in medical care ratios, enrollment momentum, and operating margins, with 2026 guidance likely influencing stock direction [22].