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UnitedHealth Group (NYSE:UNH) has been grappling with a series of setbacks over the past two months, greatly impacting its market performance. The healthcare giant's troubles began with a rare earnings miss in its Q1 2025 report, marking its first such disappointment since 2008. This initial stumble was soon compounded by the company's decision to withdraw its full-year guidance, a move attributed to rising operational costs and increased use of insurance services.

The situation further deteriorated with the unexpected resignation of the company's CEO, alongside reports that the U.S. Department of Justice is probing UnitedHealth for potential Medicare fraud. Adding to the company's woes, the Centers for Medicare & Medicaid Services announced audits of all eligible Medicare Advantage contracts spanning from 2018 to 2024. These developments have led to a 50% plunge in UnitedHealth’s share price since early April.

Despite this sharp decline, the idea of investing in UnitedHealth at what some might see as a lower valuation does not resonate with all investors. Notably, an investor operating under the pseudonym Cavenagh Research maintains a pessimistic outlook. This top-ranked investor on TipRanks argues that UnitedHealth is confronting several formidable challenges, including structural margin compression, wage inflation, and persistent regulatory scrutiny—all of which collectively heighten the downside risk for the company.

Cavenagh underscores that the Medicare Advantage sector is experiencing a prolonged period of revenue pressure, projecting a 3-5% decline in revenue per member for the year 2025 due to new rate notices. Moreover, anticipated retrospective audits could lead to significant financial clawbacks from past overpayments.

Further compounding the issue, UnitedHealth's massive workforce, consisting of 90,000 clinicians and staff, faces wage increases that could spike operational costs significantly. Regulatory challenges are expected to linger, and given UnitedHealth’s size, it remains under keen regulatory watch, potentially exacerbating its compliance burdens.

In summary, while some might view the current downturn in UnitedHealth's stock as a buying opportunity, critical voices like Cavenagh Research advise caution, citing numerous structural and regulatory headwinds that could impede the company's recovery in the near term.