When a CEO abruptly quits and the company withdraws its guidance, those are red flags. UnitedHealth (UNH) CEO Andrew Witty resigned due to personal reasons. UNH stock lost 17.79% on Tuesday to close at $311.38.
The company announced that Stephen Hemsley will replace Witty. Hemsley was UNH’s CEO from 2016-17. UNH now trades at a substantial discount at a 13 times P/E ratio. The company likely enjoyed rich profit margins in the last several years. It benefited from denying or limiting claim amounts. However, when the firm increased its approval rates, profits likely fell.
UNH is also suffering from a cybersecurity hack. This potentially disrupted operations, adding to costs.
On Tuesday, Elevance Health (ELV) fell by 9.91% while Humana lost 9.48%.
Seismic Shift in Pharmaceutical Market
The White House turned its attention to high drug pricing on Monday. The President wanted to see prescription drug prices reduced by 30% to 80%. Although the drug manufacturers will resist selling products at lower prices, profits are at risk. The government may investigate how medical plan providers operate. This increases the risk of profit margins falling for Elevance, Cigna (CI), CVSHealth (CVS), and Humana.
Your Takeaway
The healthcare plan and drug manufacturing sector trades at a discount. Investors may consider building a position before stock prices recover.