BofA Upgrades UnitedHealth (UNH) to Buy, Raises PT

UnitedHealth Group (UNH) stock earned a Buy call from BofA Global Research on Thursday, with better medical cost trends and a generally more favorable environment for managed-care stocks in general improving the analyst community's views on the health insurer's shares.

"We are upgrading UNH to Buy as improving medical cost trends and supportive near-term data points set up a favorable [second-quarter] earnings setup and attractive risk/reward," a team of BofA analysts, led by Kevin Fischbeck, wrote in a research note out Thursday morning. "If utilization trends continue to moderate, UNH-given its bellwether status-should lead a broader MCO [managed care organizations] rally."

BofA Raises Earnings Estimates, Price Target on UNH Stock

Fischbeck and his team point out that UnitedHealth is currently guiding to the low end of its target margins on all of its businesses by 2028.

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"At that point, UNH is likely still well positioned to grow EPS at least 13-16% for the next few years given that Optum Health and Medicaid would still have room to improve margins back to the midpoint of target, and UNH will start to pivot to membership growth in the other businesses once it hits its subsegment margin target," they write.

As a result, BofA Global Research is raising earnings per share (EPS) expectations for the next three years:

• 2026: $18.70 (from $18.30 previously)
• 2027: $21.00 (from $20.17 previously)
• 2028: $24.00 (from $22.34 previously)

The team also raised its price target on UNH to $450 per share, from $420 previously, implying 13% upside from current levels.

BofA also noted that certain medium- and longer-term risks remain, pointing to the upcoming Medicare Advantage (MA) Star Ratings for 2028, coming out in October, as a possible hurdle.

"UNH's benefit cuts in 2026 make it incrementally more difficult to perform well," the team writes. "The good news is that UNH's contracts are more diversified than [CVS Health's (CVS)] or [Humana's (HUM)] were when they had their issues, making a 10% drop in stars more likely than a 50% drop. Meanwhile, we would not be surprised if the 2028 MA rate proposal (Feb 2027) is close to 0% and includes risk adjustment changes. That said, it is dramatically easier to deal with rate pressure if margins are already back to target, and to some degree lower rates are less onerous if trend is also lower.

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Analysts Growing More Bullish on UnitedHealth, Other MCOs

BofA's upgrade is the latest in a wave of optimistic analyst views toward UnitedHealth and the broader MCO space.

Morgan Stanley's Erin Wright (Buy) wrote Thursday that first-quarter managed care earnings showed a string of medical loss ratio (MLR) beats, and that utilization commentary was not only reassuring then, but "seems to only have turned incrementally positive since, based on early reads from constituents/providers."

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In her note, Wright also explores the potential for artificial intelligence (AI) to lift MCO companies.

"AI adoption across the managed care ecosystem has moved decisively beyond pilots and is now embedded across core workflows, including prior authorization, call center operations, provider portals, care management, pharmacy utilization, and payment integrity," she writes. "Constituents are increasingly vocal on the opportunity set, and the cost savings potential is clear, particularly for manual, data-intensive processes such as prior authorization."

“Yet, beyond operating costs, there is also a line of sight to AI deployment benefiting MLR, and even incremental revenue generation via 'AI enablement' capabilities (where UNH is leading, with CVS close behind).”

Wright says UNH "remains our Top Pick" and lifted her price target to $453 per share from $395 previously.

On June 1, Truist Managing Director David MacDonald (Buy) says his firm "remain[s] bullish on the Diversified Managed Care sector, continue to see meaningful embedded earnings potential tied to ongoing margin recovery across the government businesses, expect continued solid trends in Commercial, [and] were encouraged by upbeat 1Q results where medical cost trends landed favorably to our/consensus expectations, with forward guidance maintaining what we view as an upward bias/prudent stance towards ongoing cost trend."

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MacDonald also raised his price target, to $440 from $395 previously.

These are just a handful of the 23 Buy calls on UNH stock, according to S&P Global Market Intelligence data. Meanwhile, just four pros call UnitedHealth a Hold, and one says it's a Sell.

However, Wall Street's expectations for stock growth from here are fairly muted, with an average price target of $405 per share just 1% higher than current prices. Growth expectations are decent, though, with the Street looking for 13% average annual bottom-line growth over the next three to five years.

Also worth noting: UnitedHealth on June 3 announced a 5% dividend hike, to $2.32 per share, for the payment to be made June 23. That marks UNH's 17th consecutive improvement to the distribution (on an annual basis).

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