UnitedHealth stock up after Warren Buffett purchase

As UnitedHealth Group wrangles with a federal investigation, an executive shuffle and a tanking stock price, a bullish ally has emerged: Warren Buffett.

The Eden Prairie-based health giant’s stock price jumped more than 10% before trading opened Friday following news that Buffet’s Berkshire Hathaway had acquired about 5 million shares.

The purchase, worth more than $1.57 billion according to a U.S. Securities and Exchange Commission filing Thursday, was a shot in the arm after a tumultuous year in which the company lost half its value.

UnitedHealth’s stock rose about 12% on Friday by the time the markets closed.

Morningstar analyst Julie Utterback said companies like Berkshire Hathaway look for a competitively advantaged firm trading at attractive valuations.

“Getting both of those things to happen at the same time may only happen during times of uncertainty, like we are seeing today for UnitedHealth and the [managed care industry in general],” she wrote in an email.

In April, UnitedHealth experienced its largest single-day stock price drop after the company reported quarterly revenue and profits that fell short of analyst expectations. UnitedHealth also lowered its financial outlook because of an unexpected jump in medical costs.

Hemsley’s return followed a tumultuous period for the company, including uncharacteristic financial missteps and the murder of UnitedHealthcare CEO Brian Thompson in December.

In May, the Wall Street Journal reported that the Justice Department had opened a criminal fraud investigation into Medicare billing practices at UnitedHealth. The newspaper had previously reported that the Justice Department was investigating relationships between UnitedHealth’s insurance business and its Optum health care services division.

After initially denying the probe, United confirmed last month that it was cooperating with federal investigators.

While UnitedHealth’s near-term outlook is “murky,” Utterback said, a mismatch in medical utilization and coverage rates has led to deflated profits across the industry.

“While it may not be able to resolve that issue overnight, [a managed care organization] like UnitedHealth should be able to pull levers to balance rates and utilization better over time, which should boost profits,” she said.

Berkshire Hathaway owns dozens of companies stretching across industries, such as Geico, Fruit of the Loom, Helzberg Diamonds and Bloomington-based Dairy Queen.

The investment places more than half a percent of outstanding UnitedHealth Group shares into the hands of Berkshire, ranking the Omaha-based firm among the 30 top investors, according to an analysis of shareholder data via Refinitiv Eikon.