UnitedHealth Group (UNH) Stock Plunges Amid Revenue Miss and FTC Probe

UnitedHealth Group (UNH) shares tumbled on Thursday, following the company's fourth-quarter earnings report and news of a Federal Trade Commission (FTC) probe into the company's pharmacy benefit management (PBM) practices. The stock fell 6.04% to $510.59, marking its worst single-day decline since April 2019.

Earnings Miss and Revenue Shortfall

UnitedHealth Group reported adjusted earnings per share (EPS) of $6.81, beating analyst estimates of $6.72. However, the company's total revenue of $100.8 billion fell short of analyst expectations of $101.76 billion. The revenue miss was primarily due to lower-than-expected premiums, indicating a potential slowdown in growth for the company.



FTC Probe into PBM Practices

The FTC announced on Wednesday that it was investigating UnitedHealth's OptumRx, along with Cigna's Express Scripts and CVS Caremark Rx, for overcharging patients by over 1,000 percent for key life-saving drugs. This revelation likely contributed to the 6.04% drop in UNH's share prices on Thursday, as investors reacted to the news of the potential financial and reputational impact on the company.

The FTC's probe follows a study conducted by the agency, which found that the three PBMs collectively pocketed $7.3 billion in added revenue above cost during the five-year period of the study through 2022. The study also revealed that the PBMs used their market power to negotiate higher prices with drug manufacturers and then charged patients more than the agreed-upon prices.

Investor Concerns and Market Reaction

Investors reacted negatively to the news of the potential regulatory issues and reputational damage, leading to a significant drop in UNH's stock price. The company's shares have now fallen nearly 20% from their record high set in November, and they are virtually unchanged from a year ago, while the S&P 500 has gained 25% in the last 12 months.



Analyst Recommendations and Outlook

Despite the recent decline, many analysts remain optimistic about UnitedHealth Group's long-term prospects. Of the 26 analysts covering the stock, 23 have a "strong buy" or "buy" rating, while only 3 have a "hold" rating. The average price target for UNH is $650, indicating that analysts expect the stock to rebound in the coming months.

UnitedHealth Group maintained its 2025 adjusted net earnings forecast of $29.50 to $30 per share, despite the recent setbacks. The company's strong financial performance and diversified business model have helped it navigate challenges in the past, and investors may see this as an opportunity to buy the stock at a discount.

In conclusion, UnitedHealth Group's stock price decline in the fourth quarter of 2024 was driven by a combination of factors, including a revenue miss, lower-than-expected premiums, and the FTC probe into the company's PBM practices. Despite these challenges, the company's strong financial performance and diversified business model have helped it navigate challenges in the past, and investors may see this as an opportunity to buy the stock at a discount.