UNH

Title basically

**TLDR**: UNH just got obliterated: down nearly 50% from its highs, 20% in a single day last week. The market is pricing in the apocalypse: first revenue decline in 30 years, a pathetic 0.09% Medicare rate increase for 2027, and a medical cost ratio that ballooned to 88.9%. I think the market is wrong. Not totally wrong -- the problems are real -- but wrong enough that there's real money to be made. The company still generates $32 billion a year in free cash flow, insures 50 million Americans, owns the most vertically integrated healthcare machine on Earth, and trades at a P/E it hasn't seen in a decade. I've spent three decades watching Wall Street panic over things that turn out to be cyclical, not terminal. I'm putting $50,000 of my own money into UNH because I believe this is one of those times. This is a value play. Positions and analysis below. # A Brief Introduction, Because Apparently That's What You Do Here Call me Patrick. I have been in the financial services industry since 1993. I started as a junior analyst at a firm I will not name, mainly because most of you would not recognize it, and those who would would make assumptions about me that are only partially correct. I have survived the dot-com collapse. I have survived 2008. I survived a particularly unfortunate foray into long-dated Lehman paper that I still refuse to discuss at dinner parties, even after my third Negroni. I am now in the later stages of a career I have, for the most part, thoroughly enjoyed. I live in Manhattan with my husband, two cats named after Chet Baker and Antonio Carlos Jobim, and a daughter who is off at university studying something she describes as "interdisciplinary"... which, as far as I can tell, means expensive. I recognize I'm not the typical WSB user. I have been lurking on this subreddit for roughly four years, ever since my daughter showed it to me before Thanksgiving dinner back in 2021. I was horrified. Then I was entertained. Then I was horrified again. This cycle repeats approximately every forty-eight hours. I have watched many of you lose truly staggering sums of money on options plays that a first-year analyst would have flagged as suicidal. I have watched a smaller number of you make money on trades that, while idiotic in conception, were blessed by the kind of luck that only visits the young and the reckless. In a strange way, some of you remind me of myself at twenty-four: convinced you were smarter than the market, convinced that conviction was a substitute for analysis, convinced that the next trade would be the one. This is my first DD post. I am writing it for two reasons. The first is selfish: I have done a great deal of research on UnitedHealth Group, and the act of explaining a thesis to others forces a rigor of thought that benefits the explainer as much as the audience. The second is less selfish: I would like some of you to actually make money, for once, on something that is not a fever dream born of a Discord server and a stimulant you purchased from a man you met at a vape shop. I do not use rocket ship emojis. I will not be describing anything as "bussin." If this is a dealbreaker, I understand, and I wish you well in your future endeavors. For the rest of you: go grab a coffee, close PornHub for a second, and try to, as you all say, "lock in". # Why UNH, and Why Now? I realize that posting bullish UNH analysis on this subreddit is roughly equivalent to walking into a vegan restaurant and ordering a ribeye. UnitedHealth is the company that half the internet despises. It is the company whose former CEO was murdered last year. It is the company that just posted its worst quarter in recent memory and guided for its first revenue decline in three decades. [\\"I've been doing my part.\\"](https://preview.redd.it/6zjsvofmabhg1.png?width=1024&format=png&auto=webp&s=a4ab0a938b31253956d5451c99bc8c9add52f812) I am aware of the sentiment. I do not particularly care. Here is what I care about: UNH has been absolutely annihilated. The stock hit $607 in November 2024. As of last Friday, it closed around $286. That is a decline of 53% in fourteen months. Last Tuesday alone -- when earnings dropped alongside a catastrophic CMS rate notice for 2027 -- the stock fell nearly 20% in a single session. Tens of billions of dollars in market capitalization, evaporated between breakfast and lunch. The question that interests me -- the question that should interest you, if you are capable of thinking beyond the next weekly expiration -- is whether the market's reaction is proportional to the actual damage, or whether panic has created an opportunity. I believe it is the latter. Let me show you why. # Part 1: What Actually Happened on January 27th Two things hit UNH simultaneously, and it is important to understand both of them, because the market's reaction was to the combination, not to either one individually. **First, the Q4 2025 Earnings Report.** Revenue for the quarter came in at $113.3 billion, slightly below the $113.7 billion consensus. That is not a catastrophe -- it is a rounding error. The real damage was in the guidance: UNH told investors to expect 2026 revenue of approximately $439 billion, a 2% decline year-over-year. This would be the company's first annual revenue contraction in over thirty years. They are shedding assets, exiting unprofitable markets, and "right-sizing" the business. In CEO-speak, this translates to: "We grew too aggressively, some of our acquisitions were poorly timed, and now we are cleaning up the mess." **Second, the CMS Advance Notice for 2027 Medicare Advantage Rates.** This was the real gut punch. The Centers for Medicare & Medicaid Services proposed a rate increase of 0.09% for 2027. Zero-point-zero-nine percent. Analysts had been expecting something in the range of 5-6%. This is the kind of gap between expectation and reality that causes institutional investors to hit the sell button with the urgency of a man who has just realized his Uber is arriving at the wrong terminal. UNH has the largest Medicare Advantage exposure of any insurer in the country -- roughly 30% of national enrollment. When the government effectively tells you it is going to pay you nothing more to cover seniors whose medical costs are rising 5-8% annually, the math gets uncomfortable very quickly. **The Medical Cost Ratio:** This is the number that matters most. The medical cost ratio tells you what percentage of every premium dollar goes out the door to pay for actual medical care. For UNH, this number was 83.2% in 2023. It rose to 85.5% in 2024. And in FY2025, it came in at 88.9%. That is a 570 basis-point deterioration in two years. When you are running $400+ billion in revenue, every hundred basis points of cost ratio compression is roughly $4-5 billion in operating income. Five hundred and seventy basis points is a trainwreck in slow motion. [The number that broke the stock.](https://preview.redd.it/xh189nvoabhg1.png?width=600&format=png&auto=webp&s=bedab87656e4adc81ccd1faef3bc1a4e657698ce) So the picture looks grim. I am not going to pretend otherwise. And now, I am going to explain why I think the grimness is being substantially overpriced. # Part 2: The Business Behind the Stock Price Before I discuss valuation, I want to talk about what UNH actually is, because I suspect many of you think of it as "that evil health insurance company" and leave it at that. That is like describing Berkshire Hathaway as "that company that sells car insurance." It is technically correct and almost entirely useless. UnitedHealth Group is four businesses wrapped in a trench coat: **UnitedHealthcare:** the insurance arm. Covers 50.7 million members across employer-sponsored plans, Medicare Advantage, and Medicaid. This is the part everyone knows about and most people hate. **Optum Health:** a healthcare delivery network. They employ or affiliate with tens of thousands of physicians. They are building the largest value-based care platform in the country. This is the part that is quietly eating the healthcare system from the inside. **Optum Rx:** the pharmacy benefits manager. Processes 1.6 billion prescriptions annually. When you hear about "PBM reform," this is what they are talking about. **Optum Insight:** the data and analytics arm. Sits on longitudinal health data for over 100 million Americans. This is the moat that nobody talks about and nobody can replicate. The vertical integration here is staggering. UNH collects your insurance premium, manages your pharmacy benefits, employs the doctor who treats you, and owns the data platform that analyzes your health outcomes to price your plan more accurately next year. No other company on earth does this at anything close to this scale. **This is not a company that is going to zero.** This is a company that is going through a cyclical margin compression event driven by two factors -- one regulatory (Medicare rate cuts), one operational (the Change Healthcare cyberattack aftermath) -- while the underlying structural advantages remain fully intact. # Part 3: The Moat I know most of you cannot spell "moat" without autocorrect, but this is important, so bear with me. I assess UNH's competitive moat at 7.8 out of 10. That is not a number I invented to sound authoritative -- it is a composite score across five dimensions of competitive advantage: switching costs, cost advantages, intangible assets, network effects, and efficient scale. Here is what gives UNH its moat: **Switching costs are enormous.** Eighty percent of UNH's revenue comes from risk-based products with multi-year contracts. If you are a Fortune 500 HR department, switching health insurers is a 12-18 month ordeal involving RFPs, provider network disruption, and employee complaints. Nobody does this casually. This is not like switching from Pepsi to Coke. **Vertical integration creates structural cost advantages.** The payer-PBM-provider-data stack means UNH can capture margin at every stage of the healthcare value chain. Their operating cost ratio actually \*improved\* to 13.2% in 2025 despite the cyberattack, which tells you something about the scale efficiencies at work. **The data moat is irreplaceable.** Longitudinal health records on 100+ million people, built over decades, cannot be purchased at any price. This data powers actuarial modeling, AI-driven care management, and risk adjustment optimization. A new entrant would need twenty years and several hundred billion dollars to replicate it. **Scale matters in insurance.** UNH covers 50.7 million lives. The number-two player is roughly half that size. Risk pooling, claims processing, and procurement leverage all improve with scale. UNH processes over 1 billion claims per year. This is a business where being bigger makes you structurally cheaper. [The moat is not metaphorical.](https://preview.redd.it/a0y5uwmrabhg1.png?width=1408&format=png&auto=webp&s=c1252d8eaf4155c687310381315d076a872d016e) Now, a moat does not make you immune to margin pressure. It does not make you immune to stupid acquisitions (looking at you, Change Healthcare). What it does is ensure that the business survives the cycle and comes out the other side still dominant. And that is what matters for a value investor with a 3-5 year time horizon. # Part 4: Valuation -- Where Things Get Interesting This is the part of the post where I am going to teach some of you something, and the rest of you are going to scroll past to look for the positions. Do as thou wilt. **The headline numbers:** For those of you whose financial education begins and ends with the color of a candlestick, a brief glossary before we look at the numbers. **P/E ratio** is price-to-earnings -- how many dollars you pay for each dollar the company earns. Lower means cheaper. **FCF yield** is free cash flow yield -- the percentage of the company's market cap that it generates in actual, spendable cash every year. Higher means you are getting more cash for your money. **P/B ratio** is price-to-book -- what you are paying relative to the company's net assets on paper. Lower means cheaper. **Dividend yield** is the percentage of the stock price the company pays you annually just for holding it. The **percentile** column tells you where each metric sits relative to UNH's own history over the last ten years. A 0th percentile P/E means the stock has literally never been this cheap. |Metric|Current Value|10-Year Average|Percentile| |:-|:-|:-|:-| |P/E Ratio|\~18x|23x|0th (cheapest in a decade)| |FCF Yield|\~10.6%|\~5%|100th (highest in a decade)| |P/B Ratio|\~3.0x|4.9x|10th| |Dividend Yield|\~3.0%|\~1.5%|Near-high| Now read that P/E percentile again. Zero. UNH has never been this cheap relative to its own earnings history in the last ten years. The FCF yield of 10.6% means the company generates over a tenth of its market cap in free cash flow every single year. For context, the 10-year Treasury yields 4.3%. UNH's FCF yield is 2.5 times that. **DCF Analysis (A Quick Overview for Those Who Care)** I ran a discounted cash flow model across three scenarios, probability-weighted: |Scenario|Probability |Revenue Growth|Terminal Growth|Fair Value per Share| |:-|:-|:-|:-|:-| |Bull|20%|12%|3.0%|\~$488| |Base|50%|10%|2.5%|\~$383| |Bear|30%|8%|2.0%|\~$313| **Probability-Weighted Fair Value: \~$377** A note on the probabilities, because someone in the comments is already typing furiously about them: these weightings are a judgment call, not a mathematical certainty. Reasonable people can disagree. If you think the bear case deserves 40% or even 50% after last week, I will not argue with you -- run the numbers yourself and you will find the probability-weighted value drops but still lands above the current price. That is the point. The thesis does not depend on being optimistic. It depends on the current price being pessimistic enough that even a grim outlook still leaves room to make money. At a current price of \~$287, that implies a 24% margin of safety in the base case. Even in the bear case, the stock has 9% upside. Let me repeat that: even if everything goes wrong -- Medicare rate cuts continue, margins stay compressed, competition intensifies -- the DCF model says you still make money from here. [Asymmetric risk-reward, visualized.](https://preview.redd.it/d6gp0xkhbbhg1.png?width=600&format=png&auto=webp&s=6436b4b40a314efe0d27e3eb8437cd3f7b1f8794) Now, I want to be honest about what has changed since I initially compiled this model. The January 27th developments -- the 0.09% rate proposal, the cost ratio at 88.9%, the revenue guidance miss -- are worse than what my base case assumed. The margins in the model may be too optimistic for the near term. If I were re-running the DCF today with the latest cost ratio data, the base case might land closer to $340-360 rather than $383. But here is the critical insight: \*\*even if I haircut the fair value by 15%, the stock is still trading at a meaningful discount.\*\* A $325 fair value versus a $287 price is still a 13% margin of safety. And that assumes the worst recent data persists indefinitely, which is unlikely given UNH's history of eventually adapting pricing to cost trends. **The FCF Story Is the Real Story** Forget earnings per share for a moment. EPS is an accounting abstraction that includes non-cash charges, one-time losses (the $7.1 billion Brazil write-off), and other noise. What matters for a real investor is: how much actual cash does this business generate? The answer is $32 billion per year. That is not a typo. Thirty-two billion dollars. In cash. Every year. UNH's FCF conversion ratio is 2.69x -- meaning every dollar of reported net income turns into $2.69 of free cash flow. That is top-quintile for the entire S&P 500. The business operates with a negative cash conversion cycle of about 21 days, which means they collect premiums before they pay claims. This is a natural float, similar in concept to what Berkshire Hathaway generates from its insurance operations, except at a much larger scale. Even if you assume the cost ratio stays elevated and FCF compresses to $25 billion, the stock at $287 would still yield approximately 9% on free cash flow. That is attractive by any reasonable standard. # Part 5: The Risks (Because I Am Not a Cult Leader) I promised to be honest, so here is the part that keeps me up at night. Or would, if I didn't sleep quite soundly thanks to a combination of Ambien and the knowledge that my position sizing is appropriate. **Risk #1: Medicare Advantage May Be Structurally Broken.** The 0.09% rate increase for 2027 is not a negotiating tactic -- it is a policy statement. If the government continues to underfund Medicare Advantage relative to medical cost trends, UNH will be forced to either raise premiums (which reduces enrollment), cut benefits (which reduces enrollment), or absorb the losses (which destroys margins). All three options are bad. The bear case for UNH is fundamentally a regulatory story, and I cannot predict what CMS will do in 2028 and beyond. The April 2026 finalization of the 2027 rates will be the next major catalyst. If the final rate is significantly higher than 0.09%, the stock rips. If it is confirmed, the stock likely retests the lows. **Risk #2: The Cost Ratio May Not Mean-Revert.** I am betting that 88.9% is a cyclical peak, not a structural new normal. But I could be wrong. GLP-1 drugs like Ozempic and Wegovy are creating an entirely new cost category. Hospital coding intensity is increasing as providers game the reimbursement system. If medical costs continue to outpace premium growth, the margins do not come back. Period. **Risk #3: The Change Healthcare Cyberattack Was a $3.1 Billion Warning Shot.** This was not just expensive -- it exposed 190 million individuals' data and revealed that UNH's integration of acquired companies creates serious security vulnerabilities. A repeat attack could cost just as much and do even more reputational damage. The 10-K now explicitly warns about AI-powered cyberattacks growing in sophistication. **Risk #4: Political Risk Is Real.** Both sides of the aisle have found reasons to hate health insurers. Progressive Democrats want Medicare for All. Conservative populists want lower healthcare costs. UNH's CEO was recently hauled before Congress for a public inquisition. This is not a comfortable political position. **Risk #5: Management Is Not Inspiring.** Capital allocation has been mediocre. The company bought back $10 billion in stock annually at 25-30x P/E during 2022-2023, which is the equivalent of buying groceries at a luxury resort. The Change Healthcare acquisition was immediately followed by a $3.1 billion cyberattack. The Brazil operations were sold at a $7.1 billion loss. These are not the decisions of an all-star management team. **My honest overall risk assessment:** The risk environment is uniformly worsening. I am not sugar-coating this. Every major risk factor -- regulatory, operational, cybersecurity, political -- is trending in the wrong direction. What makes this investable despite those risks is the valuation. At 18x earnings and a 10%+ FCF yield, the market is already pricing in a substantial amount of bad news. The question is whether it has priced in \*enough\* bad news, and I believe the answer is yes. # Part 6: The Peer Comparison A brief note, because context matters. |Company|P/E|ROIC|Revenue Growth|Cost Ratio| |:-|:-|:-|:-|:-| |UNH|\~18x|12.8%|12%|88.9%| |Elevance |\~13x|11.2%|5%|89.2%| |Cigna|\~13x|\~8.5%|20%|83.1%| |CVS/Aetna|\~11x|6.2%|7%|88.5%| |Humana|\~24x|4.8%|4%|90.2%| UNH's ROIC of 12.8% is 41% higher than the peer average. Its revenue growth leads the sector. It has the strongest moat, the best data platform, and the most diversified revenue stream thanks to Optum. Yes, it is slightly more expensive than some peers on a P/E basis. But as a wise man once said -- and I am paraphrasing Charlie Munger here, though I suspect most of you think Charlie Munger is a brand of frozen pizza -- "I would rather pay a fair price for a wonderful business than a cheap price for a mediocre one." UNH at 18x is the best house on a bad block. # Part 7: My Position and Thesis I am putting $50,000 into UNH shares -- not options, shares -- at current levels around $287. This represents approximately 3-4% of my liquid portfolio. I am not leveraging. I am not buying weeklies. I understand that this is profoundly boring by the standards of this community, and I am at peace with that. **Entry:** Buying shares now at \~$287, approximately 50% of my intended position. **Scale-in plan:** If the stock declines to \~$265 (30% below my DCF fair value), I will add another $25,000. **Time horizon:** 3-5 years. I am not day-trading this. I am not looking at the chart every fifteen minutes. I am going to buy it, collect the 3% dividend, and revisit the thesis quarterly. **Exit triggers:** I will sell if (a) the cost ratio exceeds 90% for two consecutive quarters, suggesting structural rather than cyclical impairment; (b) the DOJ forces meaningful divestitures of Optum; or (c) the stock reaches fair value (\~$375+) and I can redeploy capital elsewhere. **What I expect over the next 12-24 months:** Volatility. This is not going to be a straight line up. The CMS rate finalization in April will be a binary event. Q1 2026 earnings will be closely watched. I expect the stock to trade in a range of $250-350 over the next year, with the direction ultimately determined by whether the cost ratio stabilizes or continues to deteriorate. **Expected total return over 3-5 years:** 13-15% annualized, assuming mean reversion in valuation multiples and margin stabilization. That includes roughly 3% from dividends and 10-12% from capital appreciation. # Closing Thoughts I know this is not what most of you come here for. You come here for the memes, the loss porn, the stories of men who bet their children's college funds on zero-day SPY puts and somehow either tripled their money or are now living in their in-laws' basement. I get it. It is genuinely entertaining. But for those of you who are interested in actually building wealth over time -- and I know you exist, because I have seen your comments buried under the avalanche of emojis -- I hope this was useful. The techniques I have used here are not complicated. Discounted cash flow analysis. Margin of safety. Moat assessment. Position sizing. These are the tools that actual professional investors use. They are not glamorous. They will not make you rich next Tuesday. But they work, reliably, over time. For the few of you who will have read this far: well done! I offer you this advice: if the UNH play is not juicy enough for you, talk to GPT or Claude about the miderm elections effect on the markets. Far more exciting plays are coming, and soon. I've enjoyed this exercise far more than I thought I would, so I may end up writing another DD post in the near future as those opportunities begin to crop up. UNH is not a meme stock. It is a massive, boring, regulated healthcare company that is being sold at prices the market has not seen in a decade because everyone is afraid of the exact same things at the exact same time. In my experience -- and I have thirty years of it -- that is precisely when you should be paying attention. Be fearful when others are greedy. Be greedy when others are fearful. You have all heard that quote. Very few of you have ever actually acted on it. This is me acting on it. **Positions: $50,000 in UNH shares at \~$287. LEAPs if the options chain looks tasty enough. Will update if I scale in.** *Standard disclaimer: This is not financial advice. I am a guy on the internet with opinions and a brokerage account. Do your own research. If you lose money on this trade, that is your responsibility, not mine. If you make money, you are welcome, and I accept gratitude in the form of well-made cocktails.* *Note: reposting from yesterday after rewording and editing out all the naughty acronyms.*