UnitedHealth's Cost-Control Story is Gaining Momentum: Time to Buy?

Looking at the year-to-date period, UNH stock has gained 29.9%, outperforming the industry’s 25.8% growth and the S&P 500’s 7.8% rise. Peers like Molina Healthcare, Inc. MOH and Centene Corporation CNC have increased 15.5% and 55.3%, respectively, during this time.

Price Performance – UNH, MOH, CNC, Industry & S&P 500

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Cost Control is Finally Delivering Results

It reported second-quarter 2026 adjusted EPS of $6.38, which beat the Zacks Consensus Estimate of $4.94 and rose 56.4% year over year. Revenues rose 0.4% year over year to $112 billion and beat the consensus mark by 1.7%. More important than the earnings beat was the improvement in underlying profitability.

The adjusted medical care ratio improved to 86.7% from 89.4% a year earlier and came in lower than the Zacks Consensus Estimate of 88.5%, reflecting stronger pricing, disciplined benefit design and better medical cost management. Medical costs of $75.4 billion declined from $78.6 billion a year ago. This improvement is significant because medical costs have been the biggest challenge facing managed care companies over the past two years. Higher utilization, especially among Medicare Advantage members, compressed margins across the industry. UnitedHealth's latest results suggest those pressures are beginning to ease.

Premium revenues continued to grow, while Optum remained a steady contributor through its pharmacy services and healthcare delivery businesses. The diversified structure of the company once again proved valuable, helping offset pressure in its insurance business while supporting overall profitability. Operating earnings grew to $8 billion from $5.2 billion a year ago.

Management also raised its full-year 2026 adjusted earnings outlook to a range of $19.50-$20 per share. Raising guidance for a second consecutive quarter reinforced confidence that the operational improvements are sustainable. The combination of improving margins, higher earnings guidance and disciplined execution explains why investors reacted positively following the earnings release.

For further details, see UnitedHealth Tops Q2 Earnings on Cost Control, Raises '26 Outlook.

Estimate Revisions Are Trending Higher

The Zacks Consensus Estimate for 2026 EPS is now pegged at $19.48, indicating 19.1% year-over-year growth. The earnings estimate has seen 11 upward revisions over the past month against no downward movement. The consensus estimate for revenues is pegged at $446.42 billion, implying a 0.3% decline from a year ago.

For 2027, EPS is now projected to grow to $22.17, marking a 13.8% improvement. It has also seen 10 upward estimate revisions in the past month, against no downward movements. Revenues are pegged at $457.04 billion, indicating 2.4% growth from a year ago.

The company beat earnings estimates in each of the past four quarters, producing an average earnings surprise of 12.1%.

Valuation Not Cheap

The stock’s momentum has pushed valuation slightly above historical levels. UNH now trades at a forward P/E of 20.39X, above its five-year median of 19.20X and well above the industry average of 17.49X. In comparison, Molina and Centene are currently priced at 27.71X and 15.91X, respectively, both significantly higher than their own five-year median multiples.

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Wall Street remains constructive. Even after the stock’s rally, shares remain below the average analyst price target of $481.52, implying roughly 15.3% upside. That suggests expectations have improved, though the stock no longer offers the valuation cushion it did earlier this year.

Risks Still Deserve Attention

The turnaround is encouraging, but investors should not ignore the remaining challenges.

Regulatory scrutiny continues to cast a shadow over the company. Ongoing investigations involving Medicare billing practices and aspects of the Optum business could create headline risk and potentially increase compliance costs. The company is also reshaping its PBM model with a transparent, fee-based approach that breaks the link between pricing, drug list prices and prescription volume. If successful, it could become a meaningful competitive advantage.

Healthcare utilization remains another key watch point. Although medical costs improved during the quarter, utilization patterns can shift, particularly within Medicare Advantage. If claims activity accelerates faster than pricing adjustments can offset it, margin expansion could slow.

While management expects total medical membership to decline in 2026 to 46.945-47.495 million from nearly 49.760 million in 2025, growth in commercial fee-based membership should help offset part of the decline. Even so, the transition warrants close monitoring.

The Long-Term Story Still Holds

UnitedHealth's scale, diversified business model and extensive healthcare data capabilities give it competitive advantages that few peers can match. The company also stands to benefit from long-term industry tailwinds, including an aging population, rising rates of chronic disease and growing demand for healthcare services.

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

Conclusion

UnitedHealth's second-quarter results reinforced that its turnaround is gaining traction. Improving medical cost trends, another guidance increase and strong earnings execution have helped restore investor confidence after a difficult period.

While regulatory scrutiny, membership declines and utilization trends remain key risks, the company is demonstrating that disciplined pricing and cost management can support sustained margin recovery. Combined with its diversified business model, solid cash generation and favorable long-term healthcare trends, UnitedHealth appears well positioned for further gains. Reflecting the improving earnings outlook and strong estimate revisions, the stock currently sports a Zacks Rank #1 (Strong Buy), making it an attractive choice for investors seeking exposure to the managed care space. You can see the complete list of today’s Zacks #1 Rank stocks here.

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

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