UnitedHealth Is Trouncing the Market in 2026. Is the Stock Still a Buy?

Last year, UnitedHealth Group's (NYSE: UNH) struggles with rising medical costs weighed significantly on earnings -- and on stock performance. But the company has since put into place a plan to turn things around, and that plan has been bearing fruit. Though UnitedHealth's challenges haven't disappeared, the company is better navigating the current market, and efforts are paving the way for long-term growth.

Earnings in the recent quarter, which surpassed estimates, confirmed this positive momentum. And investors haven't ignored this important turnaround story. They've piled into UnitedHealth shares, sending the stock to a 21% gain so far this year. Considering this market-beating performance, is the stock still a buy? Let's find out.

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The rising cost of medical care

So, first a quick look at the headwinds facing UnitedHealth -- and its fellow health insurers. The rising cost of medical care is an issue that probably won't go away, and it hurt UnitedHealth last year, particularly since the company underestimated patients' use of medical services. But wisely, UnitedHealth decided to adapt its operations to better manage these higher costs moving forward. Efforts included dropping certain plans that were too costly, increasing premiums, and investing in artificial intelligence (AI) to gain efficiency.

The idea is that, since it's unlikely medical care costs will drop, UnitedHealth today and into the future will be better prepared to operate in a high-cost environment.

In the quarter, the company's efforts across benefit design and network curation drove better- than-expected results for its Medicare Advantage business. That said, UnitedHealth continues to face high costs across its commercial offerings, a trend that's impacting the entire industry. The company says recovery in commercial margins will be a focus "longer than originally anticipated." This will be a key point for investors to watch.

UnitedHealth increases its outlook

But, overall, UnitedHealth's moves so far have been successful, and that may be seen in the latest earnings figures. The company reported adjusted earnings per share of $6.38, up from $4.08 in the same period last year and surpassing analysts' expectations. Meanwhile, the company increased its full-year adjusted earnings per share outlook to the range of $19.50 to $20. That's up from the prior estimate of $18.25 or greater.

Importantly, the company's medical care ratio came down to 86.7% from 89.4% in the same period a year ago. This ratio measures the percentage of premiums spent on medical care. A lower number is better for the insurer financially, though regulatory limits mean this percentage shouldn't drop too low. Insurers generally aim for 80% to 85%.

It's key to note that UnitedHealth operates two units, the UnitedHealthcare insurance business and the Optum health services business. This, along with the fact that UnitedHealth is the biggest U.S. health insurer, offers the company a solid moat or competitive advantage. It would be difficult for a rival to upset UnitedHealth's market position.

Now, let's consider the stock's performance and whether this player still should be on your buy list. As mentioned, UnitedHealth stock has climbed in the double digits this year as investors tracked the company's progress over the past couple of quarters. This has driven an increase in valuation, with the stock trading at 20x forward earnings estimates, up from a low of around 15x earlier this year. But, this level is still much lower than the peak of more than 35x reached last year.

UnitedHealth may not be dirt cheap, but it has demonstrated over the past year that its plan to address the challenge of higher healthcare costs is working. So, considering the company's efforts and progress so far and the full valuation picture, it remains reasonably priced. All of that means that UnitedHealth, even after recent gains, is a stock to buy and hold onto as this recovery story could deliver more good news over time.

Adria Cimino has no position in any of the stocks mentioned. The Motley Fool recommends UnitedHealth Group. The Motley Fool has a disclosure policy.