Investing.com’s stocks of the week
Investing.com -- Moody’s Ratings affirmed UnitedHealth Group’s A2 long-term issuer rating on Monday but changed the outlook to negative from stable, citing several adverse trends facing the healthcare giant.
The rating agency maintained UnitedHealth’s (NYSE:UNH) senior unsecured debt rating at A2 and its P-1 short-term commercial paper rating. Moody’s also affirmed ratings for United HealthCare Services, Inc. and UnitedHealthcare Insurance Company, with all outlooks changed to negative.
According to Moody’s, UnitedHealth faces multiple challenges simultaneously. These include higher than expected medical cost trends in Medicare Advantage that are weakening results at both UnitedHealthcare and Optum Health, which prompted management to withdraw its earnings guidance in May.
The company’s leverage has exceeded Moody’s expectations for an A2-rated company since the 2024 cyberattack. With earnings pressure expected in 2025, debt/EBITDA could increase further, possibly exceeding 2.5x, and the timeline for deleveraging has become more uncertain.
UnitedHealth’s risk-based capital level declined to 230% of company action level as of year-end 2024, down from 250% in 2023, and could face additional strain in 2025 due to higher medical costs. Interest coverage has also declined because of higher interest rates and debt levels.
Adding to these concerns are media reports about civil and criminal investigations by the Department of Justice into UnitedHealth’s Medicare billing practices, though management states it has not been officially informed about these reported investigations.
Despite these challenges, Moody’s believes UnitedHealth will likely navigate these difficulties. The company has already taken steps to address issues, including better documentation of new members’ health conditions and adjusting plan designs to align with costs. Moody’s expects UnitedHealth’s Medicare Advantage pretax margin to return to its target range of 3% - 5% in 2026, helped by the highest government reimbursement rate in ten years at 5.1%.
Regarding the reported investigations, Moody’s notes that the Department of Justice has not commented, and such investigations can span multiple years, making it premature to speculate on outcomes.
The rating agency also cited governance considerations as a driver of the outlook change, noting that recent missteps have contributed to earnings pressure, weakening management credibility despite a strong long-term track record.
Moody’s outlined factors that could lead to a rating affirmation with stable outlook, including substantial improvement in earnings growth and margin in 2026, run-rate debt/EBITDA improving to 2.0x or better, clear improvement in risk-based capital and interest coverage ratios, and no material threats from current legal issues.
Conversely, factors that could lead to a downgrade include sustained debt/EBITDA above 2.0x without a reasonable deleveraging path, significant goodwill writedowns, consolidated risk-based capital ratio below 250%, adverse regulatory developments, or another significant cyber event.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.