On Wednesday, RBC (TSX:RY) Capital adjusted its outlook on UnitedHealth Group (NYSE:UNH), reducing the price target to $595 from the previous $615. The firm maintained its Outperform rating on the healthcare giant's stock. The revision comes as the analyst projects changes to the company's future earnings.
The analyst at RBC Capital has increased the 2025 medical care ratio (MCR) estimate by 70 basis points. Concurrently, the adjusted earnings per share (EPS) estimate for UnitedHealth Group has been revised downward to $29.75. This figure is expected to align closely with the midpoint of the management's initial guidance range.
The adjustments to the EPS estimate consider several factors impacting UnitedHealth Group's operations. Notably, the company has experienced persistent elevated Medicare coding intensity, even after the resumption of prior authorization procedures. Additionally, UnitedHealth Group faces headwinds related to Medicaid acuity, which are anticipated to be temporary.
The RBC analyst noted that while the Medicare coding issue appears to be largely specific to UnitedHealth Group, the Medicaid acuity challenge has implications for the broader industry. These considerations have been addressed separately by the analyst in their report.
In summary, despite the lowered price target, RBC Capital reaffirms its positive stance on UnitedHealth Group's shares with an Outperform rating. The new price target of $595 reflects the updated 2025 adjusted EPS estimate provided by the analyst.
In other recent news, UnitedHealth Group has experienced several adjustments to its price target by various financial firms, despite affirming its full-year earnings outlook during its third quarter 2024 earnings call. Stephens reduced its target to $605, Truist Securities to $625, Jefferies to $647, and Deutsche Bank (ETR:DBKGn) to $595, with all firms maintaining a positive rating on the stock. Adjustments were influenced by UnitedHealth's earnings per share outlook for 2025 and an anticipated increase in the medical loss ratio.
The company's third-quarter revenues reached $101 billion, marking a 9% increase. Over 2.4 million members were added to UnitedHealthcare, and 1.6 billion prescriptions were processed through Optum Rx. UnitedHealth projects the upper end for 2025 earnings to be around $30 per share.
These are recent developments, showing the company's resilience amid a changing healthcare landscape. Despite challenges such as Medicare rate cuts and Medicaid member redeterminations, UnitedHealth remains optimistic about growth potential in Medicare Advantage and value-based care models.
InvestingPro Insights
UnitedHealth Group's financial metrics and market position offer additional context to RBC Capital's analysis. According to InvestingPro data, UnitedHealth boasts a substantial market capitalization of $513.69 billion, underscoring its position as a healthcare industry heavyweight. The company's revenue growth of 9.42% over the last twelve months aligns with RBC's focus on future earnings projections.
InvestingPro Tips highlight UnitedHealth's strong dividend history, having raised its dividend for 14 consecutive years and maintained payments for 32 years. This consistent dividend growth, coupled with a current yield of 1.51%, may provide some stability for investors amid the analyst's revised outlook.
The company's P/E ratio (adjusted) of 25.0 for the last twelve months suggests that while UnitedHealth is trading at a premium, it's not as high as the current P/E of 39.35 might indicate. This valuation metric could be of interest to investors considering RBC's revised price target and earnings estimates.
For those seeking a more comprehensive analysis, InvestingPro offers 11 additional tips on UnitedHealth Group, providing deeper insights into the company's financial health and market position.
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