Baird analyst Michael Ha believes UnitedHealth faces structural issues within its Optum division, which are underappreciated by the market.

Michael Ha of Baird believes UnitedHealth Group is facing structural issues within its Optum segment that are underappreciated by the market.

Michael Ha of Baird is bullish on CVS and Cigna, viewing their issues as cyclical rather than structural like those at UnitedHealth.

Michael Ha of Baird maintains an underperform rating on UnitedHealth Group, stating it is not yet time to buy the stock, which is down 50% from its 2024 highs.

The Optum division accounts for over half of UnitedHealth's overall earnings.

UnitedHealth's Optum division employs or is affiliated with 100,000 healthcare providers out of a total of one million in the United States.

UnitedHealth's complex structure of 2,700 subsidiaries makes it very difficult to implement AI effectively across the organization.

Baird's top pick in the healthcare insurance sector is Alignment Health, which they consider the best Medicare Advantage plan in the country.

The margins for UnitedHealth's Optum Health division have declined from 6% to negative 0.8% as of the fourth quarter.

Baird predicts that CVS can increase its earnings per share to $10 from its current level of roughly $7.

Michael Ha of Baird is skeptical of UnitedHealth's ability to effectively implement AI due to its complex data architecture, which consists of 2,700 loosely connected subsidiaries.

Margins for UnitedHealth's OptumHealth segment have collapsed from 6% to negative 0.8% as of the fourth quarter, due to regulatory pressures on risk adjustment.

Michael Ha of Baird believes UnitedHealth must divest provider assets from its Optum Health division to address its structural problems.

Michael Ha of Baird predicts CVS could increase its earnings per share to $10 from its current level of approximately $7.