With UnitedHealth ‘s steep sell-off following a report that its Medicare billing practices are under investigation, analysts are evaluating how best to play the stock. Shares of the health insurer tumbled 9% on Friday, on track for its worst day since 2020. The stock is now down more than 12% on the week, making it also poised to notch its worst weekly performance in half a decade. These declines came after The Wall Street Journal reported that the Justice Department is evaluating protocols for recording diagnoses that can lead to extra payments to its Medicare Advantage plans. This civil investigation is separate from a Justice Department antitrust probe, according to the report. UNH 1D mountain UnitedHealth, 1-day Though shares took a hit, the blue-chip stock is well liked by Wall Street. About 93% of analysts polled by LSEG hold buy-equivalent ratings on the stock. One of those bullish analysts, Ben Hendrix of RBC Capital Markets, called the stock’s reaction “overdone.” Hendrix’s $655 price target implies upside of more than 30% from Thursday’s closing level. “We are disappointed to see another overhang emerge amid a flurry difficult headlines for UNH over the past months,” said Hendrix, who has an outperform rating. But “we remain skeptical of hasty stock moves on unconfirmed reports around government inquiries given the unconfirmed, or secondhand, nature of the reports and likelihood of a protracted timeline to resolution,” Hendrix added. UnitedHealth said in a statement it was not aware of any new investigation. The company accused the Journal of spreading “misinformation” around its Medicare Advantage plans, which it said are regularly evaluated by the government. Mizuho analyst Ann Hynes is also optimistic, describing the downturn as a chance to buy in on a name that she sees as an “attractive” long-term investment. Hynes also has an outperform rating, and her $650 price target suggests shares can jump 29%. While Hynes said it is never good for a company to be under investigation, she doesn’t expect it will have an effect on its short-term performance. “We expect the DoJ probe to take years and will likely result in a monetary fine,” she said. When it comes to playing the stock, she put it plainly: “We would be buyers of UNH on the weakness.” On the other hand, Don Bilson, head of event-driven research at Gordon Haskett, pointed out that Acadia Healthcare ‘s Justice Department investigation did not end with a “gentle slap on the wrist” as was expected based off historical precedent. Acadia Healthcare agreed to pay nearly $20 million last year to settle on allegations of medically unnecessary inpatient behavioral health services. Bilson also noted that the company’s price-to-earnings multiple is higher than rivals Elevance Health and Cigna . “While UNH has always traded at much higher multiples than its peers, we could see UNH losing some of its past luster if DoJ demands operational remedies that take a bite out of UNH’s profitability,” Bilson told clients. With Friday’s losses, UnitedHealth’s stock is in the red year to date. If the trend holds, it would be the stock’s third straight losing year.
