UnitedHealth Stock Falls on Report of Secret Nursing Home Payouts, HSBC Slashes Target

• UnitedHealth Group (UNH) shares dropped over 5% to $306.80 in premarket trading, down nearly 37% year-to-date, amid a Guardian report exposing alleged bonuses paid to nursing homes to reduce hospital transfers risking patient safety.
• HSBC downgraded UNH to ‘Reduce’ with a $270 price target, citing a projected 88.1% medical loss ratio for 2025, policy risks to Optum Rx, and a lower return on equity, signaling a delayed financial recovery through 2026-2027.
• The company faces challenges in its Medicare Advantage and Medicaid segments, with performance in bids, benefits, and potential funding cuts critical to its future, alongside the fallout from CEO Andrew Witty’s departure and withdrawn 2025 earnings guidance.

UnitedHealth Group (UNH) faces mounting challenges as its stock plummeted over 5% to $306.80 in premarket trading on Wednesday, reflecting a nearly 36% decline year-to-date. A Guardian report revealed the healthcare conglomerate’s alleged practice of paying nursing homes thousands in bonuses to reduce hospital transfers for ailing residents, a cost-cutting measure that reportedly saved millions but raised concerns about patient safety. This revelation compounds existing pressures on the company, which is grappling with a U.S. Department of Justice criminal investigation into potential Medicare fraud, as reported by the Wall Street Journal. The probe follows the abrupt departure of CEO Andrew Witty and the withdrawal of UnitedHealth’s 2025 earnings forecast, signaling deeper uncertainties.

Meanwhile, HSBC analysts downgraded UnitedHealth’s stock to ‘Reduce’ from ‘Hold,’ slashing their price target to a street-low of $270 from $490. Their bearish outlook hinges on three critical risks. First, they project a medical loss ratio (MLR) of 88.1% for 2025, per Visible Alpha consensus, exceeding the company’s prior 87-88% guidance, which was withdrawn. This elevated MLR could persist into 2026, straining profitability. Second, policy risks loom over Optum Rx, UnitedHealth’s pharmacy benefits manager, with potential disruptions from a pharmacy benefit manager bill or the proposed most-favored-nation drug pricing model, which analysts believe the market underestimates. Third, HSBC anticipates a lower return on equity, justifying a reduced valuation multiple, particularly as the company navigates an earnings cut cycle. The cancellation of guidance offers the new CEO an opportunity to reset expectations, a strategy analysts describe as “kitchen sinking.”

UnitedHealth, with a $291.72 billion market cap and trading at a P/E ratio of 13.3x, faces additional headwinds in its Medicare Advantage segment, where performance in bids, benefits, and star ratings will be pivotal for 2026-2027. Potential Medicaid funding cuts further threaten its Medicaid business. HSBC’s revised earnings estimates for 2026-2027 reflect a delayed recovery, acknowledging that their earlier bear case, outlined after the April 22, 2025, sell-off, underestimated the company’s earnings risks.

The convergence of regulatory scrutiny, operational challenges, and policy uncertainties has eroded investor confidence. The Justice Department’s investigation into Medicare fraud allegations, coupled with the Guardian’s report on questionable cost-cutting practices, underscores the ethical and financial dilemmas facing UnitedHealth. As the company navigates these turbulent waters, its ability to stabilize its MLR, address regulatory risks, and maintain competitive positioning in Medicare and Medicaid will be critical to restoring market trust and financial resilience.

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