UnitedHealth Group jumps after Berkshire Hathaway discloses stake

UnitedHealth Group soared in after-hours trading after Warren Buffett’s Berkshire Hathaway revealed that it purchased and held 5 million shares of the embattled healthcare giant as of the end of the second quarter, a new position for the conglomerate.

That was a roughly $1.6 billion position as of June 30 — but less now, even after the stock popped nearly 8% higher on this announcement.

It’s been a rough year for health insurers in general, but especially for UnitedHealth. This is a rare highlight during a year to forget. The company cratered after reporting Q1 earnings, saw its CEO leave and pulled guidance shortly thereafter, then fell out of bed again after posting disappointing second-quarter results at the end of July. Oh, and it’s also facing a probe from the Department of Justice into its Medicare Advantage practices.

All this bad news has pushed the company’s stock price down 46% year to date as of Thursday’s close, but that also may have been what made it attractive to a value-oriented shop like Berkshire.

At the end of the second quarter, UNH’s forward price-to-earnings multiple was about 13.1x, versus a trailing five-year average of 19.2x.

Since the end of Q2, its valuation has risen, but for a bad reason: its earnings estimates keep getting chopped.