What’s Next For UNH Stock After A Q1 Miss?

UnitedHealth Group (NYSE: UNH) recently reported its Q1 results, with revenues and earnings missing the street expectations. The company reported revenue of $109.6 billion and adjusted earnings of $7.20 per share, compared to the consensus estimates of $111.6 billion and $7.29, respectively. Given the downbeat earnings, UNH stock is trending lower in pre-market trading on Thursday, April 17. Now, if you want an upside with a smoother ride than an individual stock, consider the High-Quality portfolio, which has outperformed the S&P and clocked >91% returns since inception.

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How Did UNH Fare In Q1?

In the first quarter, UnitedHealth Group’s revenue grew 9.8% year-over-year, reaching $109.6 billion. This growth was primarily driven by strong performances in both its segments, with UnitedHealth achieving a 12% increase and Optum growing by 5% year-over-year.

A key metric for investors, the medical care ratio, came in at 84.8%. While this is slightly higher than the 84.3% reported in the same quarter last year, it was a positive surprise, as it was better than the anticipated figure of 85.9%. However, the company’s management stated that the medical costs will be higher than anticipated for its Medicare plans, weighing on its overall profitability.

UNH saw its overall operating profit margin improve by 40 basis points year-over-year to 8.3% in the first quarter. The company also reported an increase in adjusted earnings per share to $7.20, up from $6.91 in the prior-year quarter. Looking ahead, however, UnitedHealth Group has lowered its full-year 2025 earnings outlook. The new guidance is set at $24.65-25.15 per share, down from the previous range of $26.00-26.50 per share.

In summary, UNH’s revenue and earnings missed overall expectations and the company has reduced its future earnings guidance – factors that will likely put downward pressure on its stock.

What Does This Mean For UNH Stock?

The negative reaction to UnitedHealth Group’s Q1 performance is evident in the stock’s significant decline. As of Thursday, April 17th, UNH stock is down 20% in pre-market trading. This contrasts sharply with its year-to-date performance up to the previous day (April 16th), where it had gained 16% – outperforming the broader S&P 500 index, which had fallen by 10% during the same period.

Looking at a longer timeframe, UNH’s stock performance over the past four years has been inconsistent, exhibiting volatility comparable to the S&P 500. The stock’s annual returns were as follows: 45% in 2021, 7% in 2022, 1% in 2023, and -2% in 2024. The current pre-market drop suggests that investors are clearly disappointed with the recently reported Q1 results.

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Considering the current uncertain macroeconomic environment with ongoing tariffs and an escalating trade war, the question arises whether UNH could face a similar period of underperformance relative to the S&P 500 as seen in 2023 and 2024, or if it might experience a significant rebound. While we are in the process of updating our UNH model to incorporate the latest quarterly figures, the initial indication from the market, with the stock trading around $470 in pre-market (as of Thursday, April 17th), suggests investors are unlikely to view the Q1 performance positively.

At this level, UNH stock is trading at a forward price-to-earnings (P/E) ratio of 19x, based on the midpoint of its estimated forward earnings of $24.90. This is below the stock’s average P/E ratio of 21x over the past three years. Given the recent downbeat performance and lowered full-year outlook, further amplified by the broader economic uncertainty, we believe that a slight contraction in UNH’s valuation multiple is a reasonable expectation.

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