UnitedHealth Stock Plummets 18% After CEO Resignation, Rating Downgrade

UnitedHealth Group (UNH.US), the world's largest health management giant, has seen its stock rating downgraded by Bank of America following the sudden resignation of its long-serving CEO, Andrew Witty. The bank revised its rating from "Buy" to "Neutral," significantly reducing the target price from $560 to $350, a 37.5% decrease. This move comes after UnitedHealth withdrew its 2025 financial guidance, citing a sudden change in the operating environment due to surging medical needs. The announcement led to an 18% drop in the company's stock price, the largest single-day decline since 2011.

Analyst Joanna Gajuk from Bank of America highlighted two major concerns in her report. Firstly, the management's inability to accurately assess the sustainability and scope of rising medical costs. Secondly, the need to allocate sufficient time for the new CEO to develop a revised strategic plan. UnitedHealth has indicated plans to formulate a new bidding strategy over the next few months, aiming to restore a 3% to 5% operating profit margin in the Medicare Advantage (MA) segment. However, this could come at the cost of stagnant or declining membership.

Gajuk also addressed industry-wide implications, noting that competitors like Humana are not facing systemic risks. Humana's current challenges are more internally focused, related to governance issues, rather than indicative of broader industry headwinds. The sudden departure of UnitedHealth's CEO is seen as a symptom of internal management disarray rather than a sign of industry-wide turbulence.

This unexpected management upheaval has exposed the vulnerabilities of the healthcare giant under the pressure of medical inflation. It has also prompted a reassessment of the valuation framework for the healthcare sector. As the 2025 Medicare bidding season approaches, the industry may be on the brink of a new strategic adjustment cycle. The sudden resignation of Witty has sent shockwaves through the market, leading to a significant downgrade in the company's performance expectations. The analyst anticipates that UnitedHealth's earnings per share for 2025 will be 10% to 20% lower than previously forecasted. This adjustment reflects a more substantial decrease of 21% to 29% compared to the initial long-term targets.