UnitedHealth Group Incorporated (UNH Quick QuoteUNH - Free Report) has plunged 26.9% since reporting disappointing first-quarter 2025 results and slashing its full-year earnings outlook. The stock dropped over $130 in a single day, its worst performance in more than 25 years, significantly dragging down the Dow Jones Industrial Average, where UNH is one of the highest-priced components.

The shockwaves extended across the healthcare sector, pulling down peers like Humana Inc. (HUM Quick QuoteHUM - Free Report) and Elevance Health, Inc. (ELV Quick QuoteELV - Free Report) , and raising broader concerns in the Wall Street about rising medical costs and their impact on insurer profitability. While the S&P 500 and Nasdaq remained relatively steady due to their capitalization-weighted frames, UNH’s outsized influence highlighted the industry’s sensitivity to its performance.

Now trading near its 52-week low of $417.12, the UNH stock may offer upside potential, but does it present a real buying opportunity?

Price Performance – UNH, HUM, ELV, Industry & S&P 500

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UNH’s Q1 2025: A Closer Look

Its adjusted earnings per share (EPS) of $7.20 missed the Zacks Consensus Estimate of $7.27, while revenues of $109.58 billion missed the consensus mark by 1.4%. The cause was unexpectedly high medical costs tied to Medicare Advantage, signaling that the post-pandemic normalization in healthcare usage may be more expensive and prolonged than insurers had earlier thought.

Higher utilization is likely to keep margins lower. UNH now projects adjusted net EPS between $26 and $26.50 for 2025, down from the previous range of $29.50-$30. For further details, see UnitedHealth Lags Q1 Earnings & Revenues, Slashes Estimates.

UNH’s Valuation Still Rich

Even after the drop, UNH is not cheap. The stock trades at a forward P/E of 15.02X, compared to the industry average of 13.70X. By comparison, Humana trades at 17.28X and Elevance at 11.96X — placing UnitedHealth somewhere in the middle despite the selloff.

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UNH’s Unfavorable Estimate Revisions 

Analyst sentiment has soured. The Zacks Consensus Estimates for UNH’s 2025 and 2026 EPS have seen eight and six downward revisions, respectively, in just the past week, against no movement in the opposite direction. Projected EPS growth for 2025 now sits at a meager 0.3%, though revenues are still expected to rise 12.7% year over year. (See the Zacks Earnings Calendar to stay ahead of market-making news.)

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Is it All Over for UnitedHealth?

Despite the challenges, UnitedHealth remains a dominant player in the healthcare industry, with a strong market position and diversified operations. The company's leadership has acknowledged the issues and is actively working to address them, aiming to return to its long-term earnings growth target. While the current situation presents risks, investors should not overlook the potential Medicare Advantage rate increases in 2026 that could improve insurer margins.

UnitedHealth is also investing in Artificial Intelligence and digital tools to improve consumer experiences and optimize healthcare processes, which could boost efficiency and reduce costs for the company in the long run.

Its UnitedHealthcare business catered to 50.1 million people as of March 31, 2025, which grew 1.9% year over year due to its self-funded commercial benefits. Healthcare spending in the United States is increasing, driven by rising disease prevalence and an aging population. UnitedHealth is well-positioned to benefit from this trend, leveraging its diverse offerings to offset margin pressures.

Cash flow remains strong. The company generated $5.5 billion in operating cash in the first quarter, up from $1.1 billion a year ago, and ended the quarter with $34.3 billion in cash and short-term investments. It also returned more than $5 billion to shareholders via buybacks and dividends.

Challenges for UnitedHealth

Drug prices remain a major issue in the U.S., adding to the cost burden and driving up overall healthcare expenses. Rising medical costs and an elevated MCR are creating pressure on UnitedHealth’s earnings, as well as those of its peers.

Calls for reform in the pharma space are also growing louder. President Donald Trump is targeting "middlemen" in the drug supply chain, signaling potential regulatory overhauls aimed at reducing healthcare costs. This might affect pharmacy benefit managers, such as OptumRx, which negotiate drug prices on behalf of insurers.

Should You Buy the Dip Now?

UnitedHealth’s sharp decline has undeniably shaken investor confidence, but its long-term fundamentals remain intact. With a strong balance sheet, dominant market position and strategic focus on operational efficiency, the company is well-equipped to recover once near-term cost pressures ease.

However, elevated medical utilization, regulatory risks and downward earnings revisions limit the upside in the short run. Given the uncertainty and rich valuation relative to peers, investors may be better off adopting a Hold stance — waiting for signs of margin stabilization before considering new positions. UnitedHealth currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.