MW UnitedHealth's stock may look cheap but it can still fall a lot further, HSBC warns

By Tomi Kilgore

UnitedHealth says the Justice Department has already dismissed allegations brought up in a Guardian report that the company paid nursing homes to reduce hospital transfers

There's a saying on Wall Street that just because something is cheap doesn't mean it can't get cheaper, and that's basically what HSBC said about UnitedHealth Group Inc.'s stock in a note to clients on Wednesday.

HSBC analyst Sidharth Sahoo cut his rating on the stock $(UNH)$ to reduce, a month after downgrading it hold. He also slashed his stock-price target to $270 from $490, with the new target implying about 12% downside from current levels.

Sahoo's new bearish call comes after the stock has already lost nearly half its value over the past month, as the health insurer slashed its full-year outlook, citing weakness in its Medicare Advantage business, then made matters worse last week by withdrawing that outlook because conditions had worsened.

Add to that a report about a government criminal investigation into the company's Medicare practices, and the stock sank to a five-year closing low of $274.35 last Thursday before bouncing over the previous three sessions.

On Wednesday, the Guardian provided more bearish ammunition with its report that UnitedHealth had secretly paid nursing homes to reduce hospital transfers in an effort to cut insurance costs.

The stock dropped 4.4% in midday trading, even after UnitedHealth moved to dismiss the report.

"The U.S. Department of Justice investigated these allegations, interviewed witnesses, and obtained thousands of documents that demonstrated the significant factual inaccuracies in the allegations," the company said in a statement. "After reviewing all the evidence during its multi-year investigation, the Department of Justice declined to pursue the matter."

HSBC's Sahoo noted that with the stock's selloff - it was recently 47.5% below where it closed on April 16 - those who are bullish say it is trading at about a 30% discount to historical valuations, which presents investors with an attractive entry point.

But Sahoo basically said that's not enough of a discount, given the risks investors are facing.

For one, UnitedHealth's medical loss ratio, which is what the company pays out versus the premiums it collects - lower is better - looks likely to increase this year by more than the withdrawn guidance of 87% to 88%. And rising costs could spill over into 2026.

In addition, the company's Optum Rx pharmacy benefit manager business faces significant political risks, as there is bipartisan appetite for PBMs to cut drug prices. And President Donald Trump has pushed recently to institute a "most favored nation" policy that would set the prices Americans pay for prescription drugs at the same level as the lowest prices paid overseas.

"Policy risks on integrated PBM businesses could persist as the new administration strives to reduce the U.S. healthcare cost budget," Sahoo wrote.

He added that a potential Medicaid funding cut, as the administration looks to push through its "big, beautiful" tax bill, would also hurt the stock.

Sahoo remains in the minority on Wall Street, as only three of the 29 analysts surveyed by FactSet who cover UnitedHealth's stock are bearish. There are 21 analysts who are still bullish and five who are neutral.

The average price target of $378.86 implies about 23% upside from current levels.

Now read: UnitedHealth sees a longtime bull throw in the towel after stock's plunge

UnitedHealth's stock has tumbled 39.3% in 2025, to make it the S&P 500 index's SPX worst performer this year.

-Tomi Kilgore

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May 21, 2025 12:36 ET (16:36 GMT)

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