UnitedHealth Group shares posted their sharpest gain in five years Friday after Warren Buffett's Berkshire Hathaway disclosed a $1.6 billion stake, sparking a wave of investor optimism in the embattled health insurer.
The stock surged 12%, adding roughly 209 points to the Dow Jones Industrial Average at the market open. It closed up 9.3% at $296.64, a sharp turnaround for a company whose shares had fallen nearly 50% year-to-date before the disclosure.
In a Thursday filing with the U.S. Securities and Exchange Commission, Berkshire revealed ownership of 5.04 million UnitedHealth shares as of June 30. Hedge funds including David Tepper's Appaloosa Management, Lone Pine Capital and Two Sigma Investments also reported buying into the stock.
Buffett's move follows a pattern of placing large bets on companies under pressure. He took a stake in Goldman Sachs during the 2008 financial crisis and invested in Occidental Petroleum in 2019 as it financed a major merger. Kevin Gade, chief operating officer at UnitedHealth investor Bahl & Gaynor, said, "Buffett's purchase is a psychological reassurance to many investors that saw UnitedHealth as 'untouchable,' given the massive turbulence in the stock over the past few months."
UnitedHealth's troubles have mounted over the past two years. The company is facing a Justice Department investigation into its Medicare billing, fallout from a cyberattack at its technology unit that affected more than 192 million Americans, and the December murder of its insurance division chief. Operational pressures deepened in May when CEO Andrew Witty resigned, prompting the return of Stephen Hemsley, who led the company from 2006 to 2017.
The insurer pulled its annual earnings guidance in May, and last month issued a 2025 outlook of at least $16 a share in adjusted earnings, well short of Wall Street's reduced estimate of $20.91. Shares now trade at about 15.8 times forward earnings, below their five-year average of 19.
Analysts say Berkshire's investment may establish a near-term trading floor for the managed-care sector. George Hill, a Deutsche Bank health care analyst, called it "a big vote of confidence" that could serve as "a rallying point for other investors that the space is safe to invest in again."
Morningstar analyst Julie Utterback noted that while "UnitedHealth still faces elevated uncertainty, it is good to see that this renowned investment firm also believes the market is discounting assumptions that are too pessimistic for the long term."
The ripple effects were visible across the industry, with shares of Centene, Humana, and Molina Healthcare rising between 2% and 4% on Friday. Berkshire also disclosed new positions in Nucor, Allegion, and Lamar Advertising.
