UnitedHealth Group is an AI stock that isn’t living up to expectations


UnitedHealth Group Inc. (NYSE: UNH) is down 7.2% in 2023. The health maintenance organization (HMO) sector is lagging the market in general. Therefore, investors can just take a pause at a stock that has climbed 100% over the past five years.

And with so many macroeconomic headwinds, this is not the time to sound the alarm, but it is curious. The reason for that curiosity is that artificial intelligence is among UnitedHealth Group’s quiver of offerings.

No-brainer Applications for Artificial Intelligence

UnitedHealth Group is no stranger to AI. The company acquired Optum in 2011. Optum incorporated AI insights into its clinical decision support tools. The goal is to equip healthcare providers with greater predictive capabilities. Ideally, this would allow practitioners to be proactive in spotting negative health problems before they emerge. By all accounts, the company is delivering on that promise.

It is often said that the stock market acts like a voting machine. And right now, artificial intelligence (AI) stocks are getting all the votes. Companies to pick this earnings season Meta Platforms, Inc. (NASDAQ: META), Alphabet Inc. (NASDAQ:GOOGL), Apple Inc. (NASDAQ: AAPL) And Palantir Technologies Inc. (NYSE: PLTR) made explicit reference to AI in its quarterly earnings report. In each case, the respective stocks rallied after the earnings report as FOMO on AI stocks continues to rise.

This is not the case with UNH stock. The company reports its first quarter earnings on April 14, 2023. Despite beating the top and bottom lines and increasing its earnings guidance for the year, the stock is down more than 7% since the report.

a solid income report

at the time of income reportThomas Hughes of MarketBeat has given UnitedHealth Group a good checkup, The company continues to grow, pays a healthy, well-supported dividend and has strong free cash flow.

Still, at that point, Hughes noted that the stock had broken out of its uptrend. For traders, this is sufficient to explain the sale. But for investors who are looking to buy the dip, it’s important to understand why the stock is plunging. Here are some reasons why.

investors hate uncertainty

Recently, the Centers for Medicare and Medicaid Services (CMS) released this 2024 Medicare Advantage Advance Notice, One of the changes is an adjustment in the organization’s risk adjustment model. UnitedHealth Group is concerned that these changes could have potentially unintended consequences.

The good news is that CMS The changes have been agreed in a phased manner. According to chief executive Andrew Witty, this will “allow more time to mitigate the impact on beneficiaries” as the company uses its ability to manage costs to minimize any lost revenue.

But the delay also means there will be a greater period of uncertainty surrounding the company’s future development. And that could keep UNH stock under pressure.

sell first ask questions later

Investors also received news in early May that the company would have to pay $91 million damages as part of a dispute over billing practices that was filed in 2018. At the time, Envision Healthcare sued UNH Group, claiming it was a victim of the company’s “long-running campaign” to avoid paying legitimate medical bills.

As investors can see with a company Johnson & Johnson (NYSE: JNJ)When it comes to settlement, investors sell first and ask questions later. JNJ stock has fallen more than 2% a month after settling a long-running talc powder lawsuit. Another blue chip company 3M (NYSE: MMM) Down 32% over the last 12 months as it is still mired in multiple lawsuits.

What to do with UNH stock?

In a trader’s market, UNH stock sticks out like a sore thumb. Right now, the stock is more geared toward long-term investors who have the patience to wait for the noise to settle down. The company raised its earnings guidance. The low end of that range at $24.50 is slightly below the midpoint that analysts are estimating at $24.80. And while a dividend yield of 1.34% isn’t impressive, the company offers a payout of $6.60 per share that will likely grow over the next quarter or two.

The views and opinions expressed here are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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