UnitedHealth surges after Warren Buffett bets on recovery

By Mariam Sunny and Shashwat Chauhan

Aug 15 (Reuters) - Shares of UnitedHealth Group UNH.N surged nearly 14% on Friday after billionaire Warren Buffett's Berkshire Hathaway BRKa.N bought 5 million shares of the company, providing a shot in the arm for investors who think the health conglomerate will turn around under its new CEO.

The shares have lost nearly half their value in the last year as the company struggled to adapt to rising healthcare costs and changes to government reimbursement plans that affected its health insurance and Optum patient care businesses.

News of Buffett's stake, along with purchases by other large hedge fund managers, suggests investors believe the stock currently does not reflect its long-term outlook. However, the turnaround may be slow, as UnitedHealth reckons with billions of additional medical costs expected to hit in the coming quarters.

At least two analysts said the next 18 months will remain challenging for the industry bellwether as it navigates higher utilization of medical care and a decline in memberships in government-backed plans.

The "vote of confidence" from Buffett validates UnitedHealth's long-term value, but "(the) management needs to regain trust and credibility with investors, and get back to its beat-and-raise reputation of the past," said James Harlow, senior vice president at Novare Capital Management.

UnitedHealth missed Wall Street's earnings target for two straight quarters this year and was forced to pull back its 2025 outlook in May, rare moves for a company that had long been favored for its regular earnings growth. It reinstated the annual outlook last month, but the profit forecast was well short of analysts' already lowered estimate.

The company's shares currently trade at about 16.75 times forward earnings estimates, compared with peer CVS Health CVS.N 10.51.

The shares have dropped nearly 40% in 2025, making it the worst-performing stock on the blue-chip Dow Jones Industrial Average .DJI this year.

The stock was last up 13.9% at $309.14, set for the best single-day move since October 2008 if gains hold.

Friday's gains helped the Dow hit an all-time intraday high, while shares of rivals Humana HUM.N, Elevance Health ELV.N and CVS Health CVS.N rose more modestly.

"I'm a bit surprised at the magnitude of the stock move today but that shows how beaten up and out of favor the stock and entire health insurance sector is," Jeff Jonas, portfolio manager at Gabelli Funds said.

In the last two years, the company has dealt with fallout from a cyberattack at its technology unit that served as a major backbone in the U.S. healthcare system, the murder of its insurance unit chief in December, and a federal investigation into its government-backed health plans.

In May, CEO Andrew Witty abruptly resigned in the face of the worsening operational issues, and Stephen Hemsley, who had run the company from 2006 to 2017, took over.

PSYCHOLOGICAL REASSURANCE

Buffett is known as a patient and opportunistic investor, swooping in with big investments in companies during periods of struggle when he sees a long-term strategic value.

He invested heavily in Occidental Petroleum OXY.N in 2019 as it tried to finance a merger with Anadarko Petroleum and has kept adding to his stake despite the company's weak stock performance. He famously took a stake in investment bank Goldman Sachs GS.N at the height of the global financial crisis in 2008.

"Buffett's purchase is a psychological reassurance to many investors that saw UnitedHealth as 'untouchable,' given the massive turbulence in the stock over the past few months," said Kevin Gade, chief operating officer at UnitedHealth investor Bahl & Gaynor.

Berkshire said in a U.S. Securities and Exchange Commission filing on Thursday that it owned 5.04 million UnitedHealth shares, worth about $1.57 billion, as of June 30. Buffett owned about 1.18 million shares in UnitedHealth between 2006 and 2009, before selling his entire stake in 2010, during CEO Helmsley's previous term.

Several other prominent hedge funds, including David Tepper's Appaloosa Management, Lone Pine Capital and Two Sigma Investments, also bought UnitedHealth's shares, regulatory filings showed on Thursday.