Bank of America said it is bullish on UnitedHealth Group's (UNH) stock in a note Thursday, despite the nationwide fallout from the cyberattack on UHG's subsidiary Change Healthcare and a recent antitrust probe by the US Department of Justice.
"Although neither piece of news is welcome, the magnitude of the sell-off far outweighs the likely impacts, in our view," said BoA research analyst Kevin Fischbeck.
UHG's stock held steady after news of the cyberattack on Feb. 21, but days later, when the DOJ announced its probe, the stock began to fall — and continues to do so. Over the past five days, the stock is down more than 2% and is down more than 8% in the past month. UHG has lost more than $30 billion in market cap since the end of February.
"(UHG) is now trading at 82% of the market multiple (has traded above this level 95% of the time over the past 10 years), making it a compelling value, and we are making it our top MCO [Managed Care Organization] pick," Fischbeck wrote.
BoA analysts aren't alone in thinking the attack and probe are unlikely to be long-term headwinds. The stock has 22 Buy ratings, half of which are Strong Buys.
The ongoing fallout from the cyberattack, which has continued for two weeks and paralyzed payments in the system to the point that the US Department of Health and Human Services (HHS) had to intervene, is seen as minimally impactful.
That's because Change only represents 2% of UHG's earnings, even though it has an outsized impact on providers, pharmacies, and other insurers. CVS (CVS) recently said about 25% of its claims are processed by Change, and Humana (HUM) said 15-20% of its claims were affected.
"We see it as very unlikely for CHNG to impact EPS even 1%, as the network problems should eventually be resolved (past stocks with cyberattacks have generally returned to normal within months of resolving them), likely making this a transitory issue, in our view. Even if the company loses some customers as a result, we believe the run-rate exposure is likely less than 1%," Fischbeck said.
Anjalee Khemlani is the senior health reporter at Yahoo Finance, covering all things pharma, insurance, care services, digital health, PBMs, and health policy and politics. Follow Anjalee on all social media platforms @AnjKhem.
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