UnitedHealth Group's (UNH) Medicare Advantage business should continue to drive positive growth despite employer commercial pressure, RBC Capital Markets said in a Thursday note.

Performance in Medicare Advantage significantly impacted the company's Q2 earnings beat, with a medical cost ratio of 86.7% that included $860 million of net favorable prior period development, according to the note.

UnitedHealth priced its 2027 Medicare Advantage plan bids aiming for margin expansion, but stated that it may exit some geographies because the final MA payment rate increases are still lower than its cost levels, although it added that it expects to leave fewer markets in 2027 compared to this year, the note said.

Employer commercial trends were worse than company expectations of around 11%. With the trends expected at the current elevated levels for the remainder of the year, UnitedHealth moved back its recovery timeline to achieve a target margin of 7% to beyond 2027, RBC said.

Based on confidence in Medicare Advantage and Optum Health margin recovery, RBC raised its full-year adjusted EPS estimate to $19.76 from $18.28 and boosted its 2027 EPS estimate to $22.51 from $20.51.

RBC reiterated the company's stock rating at outperform and increased the price target to $478 from $463.

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