UnitedHealth Group's (UNH) better-than expected Q1 earnings and its surprise increase in 2026 EPS guidance are signs that the company's turnaround has started, and momentum is expected to continue with solid execution, Morgan Stanley said in a Wednesday note.
The outperformance of Optum Health suggests that operational investments made in H2 of last year are beginning to pay off, along with improvements to contracts, Morgan Stanley analysts said.
Artificial intelligence improvements, such as generative AI chatbot Avery and AI platform Optum Real, are reducing administrative burdens and improve clinical workflows, the analysts said. UnitedHealth is focused on the near-term impact of the AI tools, expecting the investments to provide a 2:1 financial return over the next few years, with many initiatives achieving payback within 12 to 18 months, the analysts noted.
Morgan Stanley increased its projected 2026 EPS for UnitedHealth to $18.27 from $17.77 and 2027 EPS to $20.95 from $20.45.
Morgan Stanley reiterated the company's stock as a "top pick" with rating of overweight and increased the price target to $395 from $375.
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