UnitedHealth Stock Looks Reasonable at 18.39X P/E: Should You Buy Now?

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UNH Is Having a Good Year

UnitedHealth shares have gained 19.3% year to date, ahead of the S&P 500’s 12.6% advance but slightly behind the industry’s 20.3% increase. Performance among major peers has been mixed. Humana has surged 49.1%, while Elevance has gained 13.6%.

YTD Price Performance – UNH, HUM, ELV, Industry & S&P 500

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Despite the rally, Wall Street sees more room to run. The average analyst price target stands at $481.52, implying about a 21.7% upside from current levels. Targets range from $380 to $529, showing differing views on its recovery.

Lower MCR Offers a Key Relief

One of the biggest reasons investors are warming to the stock is the improvement in medical costs. UnitedHealth’s adjusted medical care ratio improved to 86.7% in the second quarter of 2026 from 89.4% a year earlier. Medical costs also declined to $75.4 billion from $78.6 billion.

The improvement is important as elevated utilization, particularly among Medicare Advantage members, has pressured margins across the managed care industry over the last few years. Better pricing, disciplined benefit design and cost management suggest those pressures may be easing for UNH. Investors now want to see whether lower medical costs can be sustained and support earnings growth through 2027 and beyond.

Estimate Revisions Are Trending Higher

The Zacks Consensus Estimate for 2026 EPS is now pegged at $19.69, indicating 20.4% year-over-year growth. Analysts have raised the estimate five times over the past month, with no downward revisions. The consensus estimate for revenues is pegged at $446.85 billion, implying a 0.2% decline from a year ago.

For 2027, EPS is now projected to grow to $22.42, marking a 13.8% improvement. It has also seen five upward estimate revisions in the past month, against no downward movements. Revenues are pegged at $457.52 billion, indicating 2.4% growth from a year ago.

The company has also beaten earnings estimates in each of the past four quarters, delivering an average surprise of 12.1%.

Growth Drivers Remain Intact

UnitedHealth still has several advantages working in its favor. Its scale, broad healthcare platform and large data resources give it a strong position across insurance, pharmacy services and healthcare delivery. An aging population, higher chronic disease rates and rising demand for healthcare should provide long-term support for the business.

Optum remains an important part of that story, helping diversify earnings beyond the insurance operation. The company is also changing its pharmacy benefit manager model toward a more transparent, fee-based structure. If executed well, the shift could strengthen Optum’s competitive position while addressing concerns about traditional PBM practices.

Capital Returns Add to the Appeal

UnitedHealth also continues to generate significant cash and return it to shareholders. The company returned more than $13 billion through dividends and share repurchases in 2025. Through mid-July 2026, it had repurchased $4 billion of stock and remained on track to buy back at least $5 billion for the year. It also paid $4.1 billion in dividends during the first half of 2026.

The stock’s 2.36% dividend yield is above the industry average of 2.02%, adding to its appeal as the recovery develops.

Risks to Keep an Eye On

The turnaround is not without risks. Regulatory scrutiny remains a major concern, with investigations involving Medicare billing practices and parts of the Optum business potentially increasing compliance costs and headline pressure. Also, the Internal Revenue Service is scrutinizing UnitedHealth’s internal transactions involving UnitedHealthcare and Optum over potential tax savings, adding regulatory risk and uncertainty over possible additional taxes or penalties.

Although medical costs improved during the second quarter, it remains another key variable. If utilization, especially in Medicare Advantage, rises faster than pricing can offset it, margin improvement could stall.

Membership trends also deserve attention. UnitedHealth expects total medical membership to fall to 46.945-47.495 million in 2026 from nearly 49.760 million in 2025. Growth in commercial fee-based membership may offset some of that decline, but the shift remains an important part of the outlook.

The Bottom Line

UnitedHealth’s improving medical care ratio, upward earnings estimate revisions and strong capital returns point to a healthier outlook after a challenging period. While regulatory scrutiny, membership declines and the risk of renewed medical cost pressure remain concerns, the company’s improving operations under CEO Stephen J. Hemsley and long-term growth drivers provide a solid foundation for recovery.

With shares trading below their five-year median P/E and Wall Street seeing further upside, the risk-reward profile remains favorable. UnitedHealth currently carries a Zacks Rank #2 (Buy), supporting a constructive view of the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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