A year ago, UnitedHealth Group (UNH 1.00%) stock was a disaster. It had fallen sharply after the company encountered higher-than-anticipated costs from its members, causing it to miss analysts' estimates for the first time since the 2008-09 financial crisis.
But today, UnitedHealth Group is trading near a 52-week high. The federal government has announced better-than-expected reimbursement rates for Medicare Advantage, margins have improved, and the stock has jumped 23% since the beginning of the year.
But despite the rally, UnitedHealth Group stock remains down more than 34% from where it traded just two years ago. Does the stock have more room to run higher, or is this a good time for investors to take profits?
Image source: Getty Images.
What's happening with UnitedHealth Group stock?
The company's failure to meet expectations in the first quarter of 2025 triggered the company's downturn, so a look at its recent performance is important.
Revenue was $111.72 billion, up 2% from a year ago -- but more importantly, it was better than the $109.57 billion analysts projected. Adjusted earnings per share came in at $7.23, versus analysts' expectations of $6.57.
The company announced its medical benefit ratio, which reflects the percentage of revenue spent on healthcare costs, dropped 90 basis points to 83.9%. UnitedHealth Group also scaled back its Medicare Advantage plans in several states to improve its financial position.
UnitedHealth reported serving 7.55 million Medicare Advantage patients in the first quarter, down from 8.45 million a year ago. Even with those cuts, the UnitedHealthcare Medicare and Retirement division, which includes Medicare Advantage, saw revenue grow 1% year over year.
The company's government business is a huge part of UnitedHealth Group. About 44% of its revenue comes from the Centers for Medicare & Medicaid Services.
NYSE: UNH
Key Data Points
"We continue to expect membership attrition and negative margins in 2026 in light of continuing high trends and insufficient funding, with modest margin improvements beginning in 2027," said UnitedHealthcare CEO Tim Noel.
Is UnitedHealth Group a buy now?
I see two primary tailwinds for UnitedHealth Group right now -- but I think only one is really within the company's control. UnitedHealth Group launched a new generative artificial intelligence (AI) chatbot, Avery, that coordinates healthcare experiences for members and learns from their interactions. Avery was available to 6.5 million members this spring, and the company plans to expand it to serve more than 20 million by the end of the year.
The second tailwind is entirely contingent on the federal government. In April, the government announced better-than-expected payment rates for Medicare Advantage plans, increasing payments by 2.48% in 2027. That is a significant jump, considering the government had been considering a paltry 0.09% increase.
The improved payments will help UnitedHealth Group's bottom line, particularly in 2027. That's why investors are so bullish. But this could be a short-lived victory, and the Medicare Advantage rate could slow again in subsequent years.
I think the AI initiatives are important to UnitedHealth Group's future, but I'm less enthusiastic about its reliance on Medicare and Medicaid. I'm always uncomfortable when a company can't directly control its fate.
As long as the government continues to raise payment rates, UnitedHealth Group should maintain acceptable margins and remain a top health insurance stock. But if the government lowers payments again, as in its initial 2027 rate proposal, UnitedHealth Group's margins will come under pressure.
