Investing.com -- Raymond James upgraded UnitedHealth Group to Outperform from Market Perform in a note on Wednesday and established a $330 price target, arguing that artificial intelligence initiatives and margin improvement at its Optum Health unit could drive earnings materially above Wall Street expectations.

Analyst John Ransom cited the potential for AI to reduce general and administrative costs and improve margin visibility within Optum Health as the two main catalysts for the upgrade.

Raymond James raised its 2027 and 2028 EPS estimates to $21.33 and $25.64, respectively, roughly 7.5% and 8% above consensus in each year.

"We see the potential upside to earnings estimates over the next few years from announced and potential AI initiatives to lower G&A/revenue and margin improvement in Optum Health from better risk margins, lower G&A and higher FFS margins," Ransom wrote.

On the G&A front, Raymond James modeled 20 basis points of improvement per year in 2027 and 2028, adding roughly $1 billion in annual savings against its prior assumption of flat G&A as a percentage of revenue.

The firm noted that every 100 basis points of G&A margin improvement is worth approximately $3.80 per share.

The Optum Health unit’s EBIT is projected to grow from $2.2 billion in 2026 to $3.1 billion in 2028. Raymond James pointed to clinic closures, tighter physician networks and margin improvement in external risk revenue as key contributors.

On AI, the analyst stated that recent comments from management at a recent conference “suggests that there is a material opportunity to right size the cost structure across the organization over the coming years.”

“Just given how large the UNH organization is and the number of acquisitions the company has packed together to build it, we sense the opportunity to integrate and realize cost savings through AI is likely larger than peers,” he added.

UnitedHealth shares currently trade at 12.7x Raymond James's 2027 EPS estimate, a significant discount to the stock's historical multiple of around 20x.