UnitedHealth Group raised its full-year profit outlook on Thursday after reporting second-quarter earnings that comfortably exceeded Wall Street expectations, signalling that the health insurer’s turnaround efforts are beginning to gain traction even as elevated medical costs continue to weigh on the broader industry.
Shares of the company rose more than 6% in premarket trading after the largest private health insurer in the United States posted stronger-than-expected earnings, improved profitability, and a lower medical cost ratio.
The company now expects adjusted earnings of $19.50 to $20 per share in 2026, up from its previous guidance of more than $18.25 per share.
It maintained its revenue outlook of more than $439 billion, although Chief Financial Officer Wayne DeVeydt said he expects the company to outperform that target following the stronger second-quarter results.
Earnings comfortably beat expectations
For the quarter ended June, UNH reported adjusted earnings of $6.38 per share on revenue of $112.03 billion.
Analysts surveyed by LSEG had expected earnings of $4.90 per share on revenue of $110.85 billion.
Net income rose to $5.48 billion, or $6.04 per share, compared with $3.41 billion, or $3.74 per share, a year earlier.
Excluding restructuring costs, business divestitures, and reserve adjustments related to unprofitable contracts, adjusted earnings came in at $6.38 per share.
One of the key metrics watched by investors also improved significantly.
The company’s medical cost ratio, which measures the percentage of premium revenue spent on healthcare claims, declined to 86.7% from 89.4% a year earlier.
The result was well below analysts’ estimate of 88.47%.
DeVeydt attributed the improvement to tighter cost controls within the Medicare Advantage business and higher reimbursement rates for Medicaid plans covering lower-income Americans.
However, he cautioned that healthcare costs remain historically elevated.
“These results are not a reflection of trend bending or coming under control, but rather our efforts to start pushing down what is already an elevated number,” DeVeydt said.
AI becomes a bigger part of the turnaround
UnitedHealth said artificial intelligence is becoming an increasingly important part of its multi-year turnaround strategy.
The company has committed roughly $1.5 billion toward AI initiatives designed to improve efficiency, strengthen payment accuracy and reduce fraud, waste and abuse.
According to DeVeydt, AI is also helping accelerate administrative processes such as prior authorisations while improving the quality of patient care.
He stressed that AI tools are not being used to decide whether patient treatments are approved or denied.
“I would say the turnaround, and I would emphasize that on our culture, it’s really happening … that turnaround is translating to strong, strong earnings,” DeVeydt told reporters.
“So it shows that when we can do things the way we think they should be done, that we can be both a solution and be profitable.”
Even so, he described the recovery as “a multi-year journey.”
The company has been restructuring operations, reducing membership in less profitable businesses and exiting contracts that have weighed on margins.
Membership pressure continues
Despite the stronger earnings, UnitedHealth acknowledged that rising healthcare costs continue to create affordability challenges for consumers.
The company served 48.5 million members during the quarter, down about 525,000 from the previous three months.
DeVeydt said higher insurance premiums and benefit changes have contributed to declining enrollment in both Affordable Care Act exchange plans and Medicare Advantage products.
He expects the company to lose approximately 500,000 exchange members and 1.1 million Medicare Advantage members during 2026.
While pricing increases have largely offset the decline in membership and kept revenue stable, DeVeydt warned the trend is not sustainable.
“But that dynamic is not a good thing for the system in the long term,” he said.
The broader health insurance industry continues to grapple with higher healthcare utilisation as patients seek treatments delayed during the pandemic, along with rising costs associated with specialty medicines such as GLP-1 weight-loss drugs.
Analysts remain optimistic
Despite the industry’s challenges, Wall Street has become increasingly positive on UnitedHealth’s prospects.
The stock has gained roughly 25% this year after the company exceeded first-quarter expectations and outlined plans to restore profitability.
Piper Sandler recently raised its price target to $475 from $420 while maintaining an Overweight rating, implying 13.5% upside from current levels.
The brokerage said it expects UnitedHealth to return to its historical long-term adjusted earnings growth rate of 13% to 16% by 2027.
Bank of America also upgraded the stock to Buy last month and increased its price target to $450 from $420, citing improving insurance utilisation trends.
Morgan Stanley recently lifted its target price to $468 from $453, saying UnitedHealth’s results should “set a positive tone” for the healthcare sector and that the company’s AI investments could deliver meaningful cost savings over time.
According to Visible Alpha, eight of the nine analysts covering the company currently recommend buying the stock, although its recent rally has already pushed the shares above the consensus price target of about $427.
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