Berkshire's UnitedHealth Bet Highlights Long-Term Confidence Despite Depressed Earnings

Benzinga
2025.08.18 17:35
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Warren Buffett's Berkshire Hathaway and investor Michael Burry have recently invested in UnitedHealth Group Inc., signaling confidence in the company's long-term prospects despite current depressed earnings. BofA Securities remains optimistic, projecting earnings recovery by 2027, with a price forecast increase from $290 to $325. The upcoming 2027 Medicare Advantage rate update is crucial for profitability, as recent performance and ratings will significantly impact margins. UnitedHealth's stock rose 3.58% to $314.88, reflecting positive market sentiment.

On Friday, high-profile investors Michael Burry and Warren Buffett took positions in UnitedHealth Group Inc. UNH. Warren Buffett's fund bought little more than 5 million shares, and Burry disclosed in 13F filings that he purchased call contracts against 350,000 shares of UnitedHealth.

The holdings suggest Burry is betting on a sector turnaround, particularly as Medicare Advantage rates have exceeded expectations for 2026, and UnitedHealth's competitive positioning remains strong despite recent setbacks.

Berkshire Hathaway's stake in UnitedHealth signals confidence but largely reinforces the consensus that earnings are currently depressed. Investors with a five-year horizon could benefit, though most still expect steady annual returns.

Also Read: UnitedHealth: Burry, Buffett, Tepper Go Long As Halvorsen Exits

Bank of America Securities (BofA) remains bullish, projecting earnings recovery by 2027, which could drive both upside in profits and valuation multiples.

Analyst Kevin Fischbeck raised the price forecast from $290 to $325 on the better peer multiples, reaffirming the Neutral rating.

For UnitedHealth, guidance is everything. The stock only works if the company delivers, particularly with upside on its medical loss ratio.

BofA notes it's been over two years since a "United-type" quarter, but steady beats and raises could restore confidence in management and its grasp of healthcare trends.

CMS will release 2027 Star Ratings in mid-October, determining how much UnitedHealth's Medicare Advantage business qualifies for the 5% quality bonus. With Medicare Advantage margins thin at 3–5%, ratings are a key driver of profitability.

Recent drops at Humana Inc. HUM and CVS Health Group Inc. CVS underscore the risk.

If UnitedHealth posts weaker scores, margin recovery could be pushed back to 2028, leaving it no better than peers.

For UnitedHealth, the key focus is the 2027 Medicare Advantage (MA) rate update, due in February 2026. The 2026 update delivered the most significant increase in a decade, easing concerns about an unfriendly policy stance.

The bigger risk lies in coding changes. With 2026 as the final year of the V28 phase-in, no extra cuts were applied, which improved sentiment. However, 2027 could pair a stronger rate update with a new coding adjustment (V29), potentially offsetting gains.

Price Action: UNH stock is trading higher by 3.58% to $314.88 at last check Monday.

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