UnitedHealth (UNH) Up 7% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for UnitedHealth Group (UNH). Shares have added about 7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is UnitedHealth due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

UnitedHealth Q3 Earnings and Revenues Beat, Guidance Up

UnitedHealth Group Inc.’s third-quarter 2019 earnings of $3.88 per share surpassed the Zacks Consensus Estimate by 3.5%. The same was up 13.8% year over year.

Higher revenues, strength in both segments — UnitedHealthcare and Optum — plus membership growth led to this outperformance.

Strong Operating Performance

UnitedHealth posted revenues of $60.4 billion, beating the Zacks Consensus Estimate by 1.3%. The same was up 7% year over year, led by double-digit growth at UnitedHealthcare Medicare & Retirement, OptumRx and OptumHealth.

Total operating cost of $55.3 billion was up 6.3% year over year, led by higher medical costs and operating cost.  

The operating cost ratio of 14.8% improved 20 basis points year over year due to the deferral of the health insurance tax and continued effect of operating cost productivity improvements.

Strong Performance Across Segments

In the reported quarter, the company’s health benefits segment, UnitedHealthcare, generated revenues of $48.1 billion, up 4.7% year over year. Revenue growth was driven by higher enrollment and increase in pricing.
Its business groups — Employer and Individual, Medicare and Retirement and Global — contributed to the growth. Earnings from operations were up 3.8% year over year to $2.7 billion, led by revenue growth and cost control.

Revenues from Optum improved 13.4% year over year to $28.8 billion, reflecting strong contributions from the sub-segments — OptumHealth (up 34.4%), OptumInsight (16.1%) and OptumRx (5.8%). Earnings from operations jumped 20% year over year to $2.4 billion. Steady focus on accelerating growth as well as improving margins and productivity through enhanced integration and business alignment led to the segment’s overall improvement.

Increase in Membership Enrollment

The company served 49.39 million people in the quarter, up 0.8% year over year. It was led by growth in members, served in the Commercial and Medicare Advantage and partially offset by lower Medicaid and International membership.

Capital Position Update

Cash flow from operations declined 8% year over year to $12.2 billion in the first nine month of 2019.

Cash and short-term investments at quarter-end were $15.8 billion, up 10.4% year over year.

Share Buyback and Dividend Payout

During the third quarter, dividend payout grew 20% year over year to $1 billion and $600 million of shares were repurchased.

2019 Guidance Raised

Following a strong third-quarter 2019 performance, UnitedHealth raised its 2019 adjusted earnings per share guidance to $14.90-$15 from $14.7-14.9 guided earlier.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision flatlined during the past month.

VGM Scores

Currently, UnitedHealth has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

UnitedHealth has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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