Created by Grok – Buffett Knows Healthcare

UnitedHealth Group, Inc. (NYSE: UNH) is back. It’s may also be back in more ways than just one. It was on August 15 that Tactical Bulls showed none other than Warren Buffett making it a tactical play for investors. There may be a lot more going on to the story. It may also include “even more of Warren Buffett” in the mix.

The initial jump on Buffett’s stake was over 11% to $301.71 on Friday’s opening bell when Buffett’s stake was disclosed in SEC filings. The stock then stabilized in the days after between $300 and $310. Now that UNH has telegraphed a one-year-plus outlook the shares popped to $348 and have been holding Friday above the $350 mark.

Wall Street has jumped behind UNH at this point. They are issuing higher price targets after the insurance giant’s communication that its business has stabilized. FactSet tracks 20 analysts rating UNH as Buy/Outperform. Only 1 analyst Sell rating is tracked, with 6 analysts at the equivalent of Hold/Neutral.

Perhaps the biggest stabilizer is that UNH’s profits are expected to recover in its Medicare Advantage and Optum Health operations. And to be fair and balanced about the realities of any government pressure and scandals, for better or worse — there are just not really any other companies that can step in and assist the government if an immediate change would be required.

UnitedHealth was reiterated Overweight and its price target was raised to $395 from $325 at Morgan Stanley. The firm noted that it is incrementally positive following discussions with management’s conviction in its turnaround being driven by Medicare Advantage and Optum Health profit improvements. Morgan Stanley also noted that the stock is currently trading at a 17-times 2027 EPS ($20.49) and above its 10-year historical average of 15.1-times.

UNH was maintained as Neutral at BofA Securities, but its price objective was still hiked to $350 from $325 given the stable Stars in 2027 with better visibility into the long-term earnings rebound. BofA, despite a Neutral rating, has a premium valuation for the stock now:

Our $350 price objective (PO) is based on a 2027E EPS multiple of 18.4x, which applies a slight historical premium to peer MCO multiples we use to arrive at our price objectives. We think a premium to diversified MCOs is justified given the structural advantage UNH has from the growing share of earnings coming from Optum as well as the significant growth potential of Optum as well as UNH’s Health Care Services platform, which has higher margins and unregulated cash flow.

Several additional analyst calls that have been seen just in the last week:

• UNH reiterated Buy, target to $365 from $310 at Truist Securities.
• UNH reiterated Buy, target to $379 from $337 at Bernstein.
• UNH reiterated Overweight, target to $352 from $337 at Barclays.

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But, what about (potentially) more from Warren Buffett?

When Berkshire Hathaway Inc. (NYSE: BRK-B) took a $1.6 billion stake, it actually seemed like a drop in the bucket. After all, Buffett and his team would have had to spend close to $25 billion to buy a 10% stake before regulatory limits of ownership restrictions kick in.

There is a case that Buffett could be rolling into more UNH shares. It is conjecture and posturing on the surface, but Warren Buffett is the largest owner of shares in Kraft Heinz Co. (NASDAQ: KHC) and he is not very happy with the company’s decision to break itself up after being all cobbled together a decade or so ago.

It turns out that Berkshire Hathaway’s stake of 325.6+ million shares represents a 27.5% stake in Kraft Heinz. That represents roughly $8 billion worth of stock today based on a $31 billion market capitalization. Dumping Kraft Heinz would not be an easy feat, even for Buffett and his team. How eager will new buyers be if the largest holder wants to dump the stock too? He holds roughly 20 trading days’ worth of the stock!

What Buffett could do is make certain disclosures (public or non-public) to help rotate more cash from Kraft Heinz into UnitedHealth’s stock. He wouldn’t even have to make any regulatory disclosures along the way so long as he stays under the 10% ownership threshold.

Now the big question — will Buffett, who is on his way out in daily management, sell Kraft Heinz and place the money in UnitedHealth? Now it’s time to see what happens ahead.