UnitedHealth is finally getting its act together. I'm buying into the turnaround
Part of my investment process is finding strong management teams that have a successful track record. UnitedHealth Group fits the bill. The Eden Prairie, Minnesota-based company is one of the world’s largest health insurers, providing coverage to individuals, employers and Medicare and Medicaid beneficiaries through its UnitedHealthcare business. It also operates Optum, which spans direct patient care and health care technology. Key points A diversified business model that provides revenue streams beyond traditional health insurance. Investments in AI and technology could improve efficiency and create new opportunities for growth. We’re starting to see progress in controlling medical costs and strong earnings outlook. UnitedHealth ran into trouble last year as rising medical costs squeezed profits. In May 2025, the company withdrew its earnings guidance, sending shares down 17.4% that day. Then Stephen Hemsley returned as CEO. He previously ran the company from 2006 to 2017, a period during which the stock appreciated roughly 354%. So I think it’s fair to say he did a pretty good job the first time around. Shortly after returning, Hemsley also personally purchased $25 million worth of UnitedHealth stock. That’s an endorsement if I’ve ever seen one. Now UnitedHealth has delivered better-than-expected earnings in recent quarters and raised its full-year guidance. That’s a strong sign that the company is getting back on track. Why I’m buying More than just an insurance company Through Optum, the company has built a diversified healthcare services business that includes Optum Health, Optum Rx and Optum Insight. These businesses provide direct patient care, manage prescription drug benefits, and offer technology and data analytics services. So UnitedHealth gets additional sources of revenue beyond traditional insurance premiums, including recurring service fees and opportunities for higher margins. The scale is enormous. In the third quarter, Optum generated $66.9 billion in revenue and $3.7 billion in operating earnings, compared with $86.3 billion in revenue and $2.8 billion in operating earnings at UnitedHealthcare. Betting big on AI and technology UnitedHealth plans to invest nearly $1.5 billion in technology initiatives in 2026 alone, including artificial intelligence. The goal is to automate workflows and reduce the time it takes to process prior authorizations and approvals. These might not sound like the most exciting applications of AI, but I think they could make a real difference for a company of UnitedHealth’s size. When you’re serving tens of millions of people, even relatively small improvements in efficiency can add up. In addition to cutting costs, this could also improve the experience for patients and healthcare providers while creating additional opportunities for Optum’s technology business. Getting medical costs under control Rising medical costs were a big reason the company ran into trouble in the first place. But Hemsley has been addressing that through a broad effort to streamline the business and adjust its portfolio. A key measure I’m watching is the medical care ratio, which tells us how much of the company’s insurance premium revenue goes toward paying for medical services. The lower that ratio, the more room the insurer has to make a profit. UNH YTD mountain UnitedHealth Group Incorporated, YTD In the third quarter, UnitedHealth’s medical care ratio fell to 88.4%, down from 89.9% a year earlier and better than analysts expected. The company also reported adjusted earnings of $4.69 per share , beating expectations, and raised its full-year adjusted earnings outlook to at least $20.50 per share. Why now? We’re still in the early stages of a turnaround, but there are several reasons to be optimistic about what comes next. For one, the company stands to benefit from an aging population. Roughly 10,000 baby boomers are reaching traditional retirement age each day, creating continued demand for Medicare coverage and healthcare services. I’m also encouraged by the company’s longer-term earnings growth ambitions. Management is targeting annual earnings growth of 13% to 16%. The stock has already staged an impressive recovery, climbing about 27% year to date. Shares are now just 11% below their 52-week high, but I believe there’s still room for the turnaround to play out. Bottom line Medical costs remain a risk. If utilization rises faster than expected or the company’s efforts to improve profitability take longer to materialize, that could put pressure on earnings. But Hemsley has successfully led this company before. I believe he can do it again. For me, this is an opportunity to own a leading health care company with a proven leader at the helm, at a valuation that remains below its historical average. Stephanie Link is the Chief Investment Strategist at Hightower Advisors, where her division manages $8.5 billion in assets (as of June 4, 2026). She has 35 years of experience managing money and serves on KKR’s investment council. She earned a B.S. in finance from Boston College. Disclosures: Link owns in Hightower Advisors. All opinions expressed by the [CNBC Pro contributors] are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. This content is provided as part of our editorial output for informational purposes only and does not constitute financial, investment, tax or legal advice or a recommendation to buy any security or other financial asset. The content is general in nature and does not reflect any individual’s unique personal circumstances. The above content might not be suitable for your particular circumstances. 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