UnitedHealth’s Stock Faces Further Risks Despite Apparent Bargain: HSBC Analysis

In a recent analysis, HSBC’s financial experts issued a somber forecast regarding the stock of UnitedHealth Group Inc. (UNH). The investment bank suggests that, despite the perception of a discounted stock, there may be more turbulence ahead for investors. HSBC analyst Sidharth Sahoo downgraded UnitedHealth’s rating from ‘hold’ to ‘reduce’ and dramatically cut the stock’s price target from $490 to $270, indicating a potential downside of approximately 12% from recent trading levels.

Background: A Tumultuous Month for UnitedHealth

UnitedHealth’s stock has already experienced a dramatic decline, plummeting nearly 50% in the last month alone. This downturn followed the company’s announcement that it was reducing its full-year outlook due to underperformance in its Medicare Advantage business. The situation worsened further when UnitedHealth completely withdrew its outlook in the face of ongoing challenges within the sector. Moreover, a report detailing a government criminal investigation into the company’s Medicare practices exacerbated investor fears, leading to the stock hitting a five-year closing low of $274.35 last Thursday.

Recent Allegations and Market Response

Adding fuel to the fire, a report from the Guardian alleged that UnitedHealth had secretly compensated nursing homes to decrease patient transfers to hospitals, an action purportedly aimed at reducing insurance costs. Despite UnitedHealth’s vigorous denial—highlighting that the U.S. Department of Justice found no merit in the allegations after a comprehensive investigation—the stock saw a decline of 4.4% during midday trading following the report.

A Closer Look at the Bearish Outlook

While some market analysts propose that UnitedHealth’s stock, trading at roughly a 30% discount to historical valuations, might represent an attractive entry point for bullish investors, HSBC analyst Sahoo cautioned that this perceived discount may not sufficiently account for the numerous risks still facing the company. Sahoo particularly stressed the potential rise in UnitedHealth’s medical loss ratio—the percentage of premiums spent on medical care—suggesting that it could exceed the previously withdrawn guidance of 87% to 88%. Such an increase would further compress the company’s margins amidst rising operational costs.

Political Risks and Policy Changes

Political dynamics surrounding the healthcare industry present an additional layer of complexity. UnitedHealth’s Optum Rx pharmacy benefit management sector is currently navigating significant political risk, as there is bipartisan support for legislative measures aimed at reducing drug prices. Furthermore, recent discussions around a ‘most favored nation’ policy could translate into a pressing demand for drug price reductions among American consumers, placing even greater pressure on UnitedHealth’s pricing structure.

Sahoo also raised concerns regarding potential Medicaid funding cuts that could arise from the new administration’s ambitious tax plans—further jeopardizing UnitedHealth’s stock performance. He noted that while many of his peers remain optimistic, his own stance places him in a minority, as only three out of 29 analysts covering UnitedHealth are bearish. The remaining analysts are either bullish or neutral, with the average price target set at $378.86, which suggests a potential upside of about 23% from current prices.

Bucking the Trend: The Broader Market Context

As of now, UnitedHealth ranks amongst the poorest performers within the S&P 500 index for 2025, with a staggering 39.3% decline year-to-date. Though some analysts maintain a hopeful outlook, Sahoo’s stark assessment reminds investors that the path forward for UnitedHealth is laden with uncertainties, particularly in the face of bad news, political risks, and a persistent battle in the healthcare landscape.

Conclusion: Proceed with Caution

In conclusion, UnitedHealth Group Inc.’s stock may appear attractive at its current valuation, yet significant risks loom on the horizon. With a market sensitive to both corporate performance and government regulation, investors may want to exercise prudence before entering positions in what seems to be a beleaguered stock. As HSBC’s latest report suggests, just because UnitedHealth’s stock looks cheap doesn’t mean it can’t fall further.