One of the most publicized stories of the year has been the murder of UnitedHealth Group (NYSE: UNH) medical insurance division CEO Brian Thompson.
The executive was shot before an investor conference in midtown Manhattan on the morning of December 4.
At present, Luigi Mangione, a 26-year-old data engineer is the prime suspect — having been arrested on December 9 after a tip from an Altoona McDonalds (NYSE: MCD) employee.
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Following the arrest, the price of a UNH share was approximately $560, after a 2.39% move to the upside — however, the recovery seems to have been temporary.
UnitedHealth stock has experienced an 8.15% drop in price since then and was trading at $518.49 at press time, bringing weekly losses to 11.10%, monthly losses to 14.42%, and year-to-date losses to 4.37%.
Currently, the stock is trading at a 5-month low — and seems set for further moves to the downside. For the sake of reference, on the day of the shooting, UNH stock was trading at $610 — and has lost 15.06% of its value since then.
The shooting itself is of little consequence to the company’s operations — but the case has shined a renewed light on the ill-reputed health insurance industry’s most notorious and controversial practices — as well as a Department of Justice (DOJ) insider trading investigation that named the deceased among the accused.
While unthinkable just weeks ago, the prospects of an industry titan with a $474 billion market capitalization are now radically different — here is an overview of how the situation could develop going forward.
UnitedHealth stock is at risk from negative publicity
To say that the case was high profile would be an understatement. The assailant, who had inscribed the words ‘Deny, Defend, Depose’ on bullet casings also used a silenced weapon — and the inability of law enforcement to identify and apprehend him for days only served to add fuel to the fire.
Perhaps even more notably, public reactions were mixed — although coverage from mainstream media was, expectedly, sympathetic to the victim, reactions on social media could only be described as gleeful, if not outright supportive of the shooter.
UnitedHealth is the largest health insurance company in the United States — the largest healthcare company in the world, and the one with the highest rate of claim denial rates.
Facts like these were directly named as the causes of the shooting. The suspect, a sufferer of chronic back pain following spinal fusion surgery, seems to have garnered widespread sympathies from members of the public who are unsatisfied with their healthcare outcomes — and more importantly, unsatisfied with their healthcare coverage and costs.
This wave of negative publicity and sentiment has also drawn attention to other legal conflicts that UnitedHealth is involved in — a series of antitrust actions, a probe, and at least one class action lawsuit.
On a purely material level, none of these factors significantly impact how UnitedHealth operates — but as noted by professor of finance and economics at Columbia University, Laura Veldkamp, negative public perception to this degree does indeed pose a huge risk.
Institutional investors could cut stakes — putting downward pressure on UNH stock
Optics-wise, UnitedHealth has become radioactive — the company has also effectively exposed itself to stricter regulation, scrutiny, and oversight going forward.
In addition, institutional investors own roughly 50% of the company, while another 48% of ownership is in the hands of various exchange-traded funds (ETFs) and mutual funds.
The Teachers Retirement System of the State of Kentucky, for example, has cut its stake in UNH by 16% — on December 6, the Retirement Systems of Alabama followed suit with a 5.85% reduction in stake. On December 11, the ProFunds UltraSector Health Care Fund (HCPIX) reduced its holdings in the company by 11.67%.
Although ESG (environmental, social, governance) investing has largely proven to be ineffective — both in terms of securing returns and affecting socioeconomic change, readers should note that this does not necessarily mean that such factors, often seen as external, do not affect stock prices.
Lastly, it should be noted that recent events, as shocking and unprecedented as they are, in no way spell the end of UnitedHealthGroup.
As a dominant player in an industry leading the charge in regulatory capture, UNH stock, if anything, is poised to benefit from the upcoming Trump administration’s intentions to deregulate the industry. The price of UnitedHealth shares will most likely recover in the long run, although there is no telling how long the current downward trajectory will last.
Featured image via Shutterstock
