UNH Update: DOJ Probe, Buyback Boost & Post-Print Roadmap
Sizing the Upside Ahead of July 29 Earnings - Fine Risks, Buybacks, Fundamentals & Technicals
On July 29, UNH 0.00%↑ delivers its Q2 results—timed amid a DOJ inquiry into its Medicare Advantage practices and a fresh $10 b share-repurchase authorization. With medical-cost inflation still elevated and macro uncertainty looming, this earnings release will be the market’s first real test of whether UNH’s structural growth drivers and capital-return strategy can offset heightened legal and cost pressures.
Key Takeaways
UnitedHealth reports Q2 on July 29. A potential DOJ fine, even at a high-end $1.5 b (~$1.50/sh EPS), would shave ~6% off the share price at an 11.5× P/E and sits well within UNH’s cash-flow cushion. A newly authorized $10 b buyback underpins support in the $275–$285 range. Despite legal overhang, UNH’s growth engines and insider confidence remain intact. Technically, $275–$285 is make-or-break; existing holders can hedge or add in tranches, while fresh entrants should wait for a reclaim above $285 on robust volume.
Legal Overhang & Valuation Impact
Scope: DOJ’s criminal and civil requests target coding and risk-adjustment in Medicare Advantage.
Worst-Case Fine: $1.5 b, drawn from precedent at PacifiCare, Anthem and Humana.
EPS Hit: ~$1.50/share → ~6.5% EPS cut.
Price Translation: At 11.5× P/E, that’s ≈$17 of share-price impact, an incremental move in a $280+ market.
Balance-Sheet Buffer: Even $1.5 b is <8% of annual free cash flow (~$20 b) and nudges leverage by <0.2×.
Verdict: Material headline risk, but not a paradigm shift for value.
$10 B Buyback Authorization
Authorization: Incremental $10 b open-market capacity.
Floor Support: Expected heavy execution in $275–$285 zone.
EPS Accretion: Each $1 b repurchased boosts EPS by ~$1, offsetting legal provisions.
Signal: Management prefers buying stock over M&A, underscoring confidence in intrinsic value.
Fundamental Update
Q2 Guidance: $92.5 b revenue (+2% YoY); EPS consensus $5.25 vs. $5.32 LY.
Margin Focus: Optum EBITDA ~9.5%; Health Benefits ~5.8%.
Cash Flow: LTM OCF ~$30 b; FCF ~$20 b, ample to absorb any fine and fund buybacks/dividends.
Insider Conviction: CEO’s $5 m purchase at $290 post-news signals long-term faith.
Technical Update
Range: $275–$285 key support; $285–$290 resistance.
Fib Levels: 0.618 at $278.6; 0.50 at $290.
Indicators: RSI ~28 (oversold), MACD negative but flattening; weekly ADX >25 confirms downtrend.
Trigger: A post-print washout to $275 and a reclaim of $285 on >20 m volume would mark a base.
Trade Options
Existing Holders: Hedge with August $280 puts; add 25% at $285 reclaim, 25% at $295 sustained support.
New EntrantsStand aside until post-print volatility subsides; enter 50% on close >$285 on strong volume.
Stops: $275 (first tier), $285 (second tier)
Targets: $305–$310 (short-term), $330–$350 (mid-term)
Bottom Line
As UNH steps into the July 29 Q2 release, the interplay of legal scrutiny and aggressive buybacks creates a high-conviction setup. The worst-case fine is manageable; the buyback underpins a structural floor. Technical signal in the $275–$285 zone will guide your entries. Let the event wash out the noise, then scale into this moat play.
This update is solely my opinion and provided for informational purposes only; not investment advice or a solicitation to buy or sell any security.