UnitedHealth (UNH) shares closed lower on Tuesday following reports it quietly sold stakes in its business units to private equity firms like KKR (KKR) and Warburg Pincus last year to record up to $3.3 billion in additional profits. 

The timing, with most transactions executed in Q4, and the structure of these deals, which include buyback clauses, suggest the insurance giant may have used them to preserve its 60-quarter streak of beating earnings estimates. 

As of this writing, UnitedHealth stock is down more than 50% versus its year-to-date high.  

Why These Reports are Negative for UnitedHealth Stock

Reports that UNH relied on discreetly selling stakes to meet earnings expectations raises serious questions about the sustainability of its profit growth. 

While the transactions aren’t illegal, their timing and lack of explicit disclosure imply a strategic effort to mask rising medical costs and operational strain. 

Such maneuvers distort the company’s true financial health, potentially undermining trust in its long-standing earnings consistency.  

More importantly, agreements that UnitedHealth signed with the PE firms bind it to eventually repurchase the divested stakes at a higher price – adding long-term liabilities that could weigh on future cash flow and earnings quality as well. 

All in all, if the aforementioned reports were to make investors view the healthcare giant’s results as engineered rather than earned, UNH shares could come further under pressure in the coming weeks and months. 

Is it Worth Buying UNH Shares at Current Levels?

While challenges continue to pile up for UnitedHealth shares, analysts at Wolfe Research believe the ongoing weakness in the healthcare stock may be an opportunity to initiate a position at a deep discount. 

On Tuesday, the investment firm reiterated its “Outperform” rating on UNH stock, citing significant undervaluation. The company is currently going for a forward price-earnings (P/E) multiple of less than 14x, which is well below its historical average. 

However, acknowledging its ongoing struggles, Wolfe analysts lowered their price target on UNH to $330 in their research note – but that, nonetheless, indicates potential upside of 14% from here. 

Wall Street Agrees With Wolfe on UnitedHealth Group

UnitedHealth stock is currently trading at an unprecedented discount, which is keeping other Wall Street firm meaningfully positive on it as well.  

According to Barchart, the consensus rating on UNH shares remains at “Moderate Buy” and the mean target of about $360 indicates potential upside of nearly 24% from current levels.