Why UnitedHealth Group (UNH) Outpaced the Market Despite Downward Earnings Revisions

In the volatile landscape of 2025, UnitedHealth Group (UNH) has defied conventional wisdom. Despite a 40% year-over-year drop in adjusted earnings per share (EPS) and a revised 2025 outlook that slashed its projected EPS range by nearly 40% [2], the stock has surged 25.71% over the past month and 14.2% since its July 29 earnings report [3]. This divergence between fundamentals and market performance raises a critical question: Why are investors betting on a company that appears to be grappling with structural challenges? The answer lies in a confluence of contrarian value signals and institutional buying activity that suggests UNH may be undervalued in the eyes of some of the most astute market participants.

Earnings Revisions: A Symptom of Sector-Wide Pressures

UnitedHealth’s Q2 2025 results were marred by soaring medical costs, which ballooned to $78.6 billion from $65.5 billion in the prior year [2]. The company attributed this to a 7.5% medical cost trend in Medicare Advantage—well above its initial 5% projection—and margin compression in Optum Health [2]. These challenges are not unique to UNH; the broader healthcare sector has faced inflationary pressures and regulatory headwinds. However, what sets UNH apart is how the market has priced in these risks.

Data from MarketBeat reveals that earnings estimates for UNH have declined by 41.69% since the last reporting period [2], reflecting widespread pessimism. Yet, this pessimism may have overcorrected. As one analyst noted, “The market is pricing in a permanent decline in margins, but UnitedHealth’s core business remains resilient, with a dominant position in health insurance and data analytics” [1].

Institutional Buying: A Contrarian Signal

The most compelling evidence of UNH’s potential turnaround lies in the actions of institutional investors. Warren Buffett’s Berkshire Hathaway, for instance, made a surprise $1.6 billion bet on UNH in Q2 2025, acquiring over 5 million shares [3]. This move aligns with Buffett’s historical preference for undervalued, high-quality assets, suggesting he views the stock as a “mispriced gem” amid the sector’s turbulence [3].

Similarly, Michael Burry’s Scion Asset Management took a calculated contrarian position, purchasing 20,000 shares and 350,000 call options [2]. Burry, known for his “Big Short” success, has a track record of identifying overvalued markets and capitalizing on rebounds. His stake in UNH implies confidence that the stock’s 40% decline in 2025 has created a compelling entry point [2].

Not all institutional activity has been bullish. USS Investment Management Ltd reduced its stake by 7.3%, while Baron Health Care Fund pivoted toward AI stocks [4]. However, these exits underscore the broader market’s uncertainty rather than invalidating UNH’s long-term potential. As Baron’s Q2 investor letter acknowledged, “UnitedHealth remains a high-conviction name for many hedge funds, despite its short-term struggles” [5].

Contrarian Value: A Case for Re-rating

The disconnect between UNH’s fundamentals and its stock price creates a compelling case for contrarian investors. The company’s 5% dividend increase in June 2025 and $4.5 billion in shareholder returns during Q2 demonstrate its commitment to rewarding investors despite operational challenges [2]. Moreover, its revised 2025 guidance—$16 adjusted EPS—still implies a 20% yield on its current price of $320.37, assuming the company meets its target [3].

Critically, UNH’s valuation metrics appear attractive. With a price-to-earnings (P/E) ratio of 18.5x (as of September 2025), it trades at a discount to its 10-year average of 24x [1]. This undervaluation is further amplified by its dominant market share in Medicare Advantage and its Optum division’s data-driven healthcare solutions, which remain underappreciated by the market [1].

Conclusion: A Bet on Resilience

UnitedHealth Group’s outperformance in 2025 is not a fluke but a reflection of its status as a contrarian value play. While its earnings revisions highlight near-term challenges, institutional buying by Buffett and Burry signals a belief in its long-term resilience. For investors willing to look beyond the noise, UNH offers a rare combination of discounted valuation, robust cash flow, and a strategic position in a sector poised for innovation. As one market observer put it, “The market is betting on a collapse, but the fundamentals suggest a rebound is already priced in” [1].

Source:
[1] UnitedHealth: Why This Is the Time to Buy the Dip [https://www.fxempire.com/forecasts/article/unitedhealth-why-this-is-the-time-to-buy-the-dip-1535099]
[2] UnitedHealth (UNH) Q2 2025 Earnings Transcript [https://www.fool.com/earnings/call-transcripts/2025/08/06/unitedhealth-unh-q2-2025-earnings-transcript/]
[3] Berkshire Buys UNH Stock: Buffett's $1.6B Surprise Bet [https://trendspider.com/blog/buffett-buys-unh/]
[4] UnitedHealth Group Incorporated $UNH is USS Investment Management Ltd's 10th Largest Position [https://www.marketbeat.com/instant-alerts/filing-unitedhealth-group-incorporated-unh-is-uss-investment-management-ltds-10th-largest-position-2025-09-07/]
[5] Here's Why Baron Health Care Fund Chose to Exit [https://finance.yahoo.com/news/why-baron-health-care-fund-130903177.html]