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UnitedHealth (UNH) Beats on Q2 Earnings, Guides Up for 2019

Zacks Equity Research

UnitedHealth Group Inc.’s UNH second-quarter 2019 earnings of $3.60 per share surpassed the Zacks Consensus Estimate by 4%. The same was up 15% year over year.

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

UnitedHealth has a tradition of guiding conservatively and then surpassing its own estimates to surprise investors. The reported quarter was not an exception.

UnitedHealth Group Incorporated Price, Consensus and EPS Surprise

UnitedHealth Group Incorporated Price, Consensus and EPS Surprise

UnitedHealth Group Incorporated price-consensus-eps-surprise-chart | UnitedHealth Group Incorporated Quote

Strong Operating Performance

UnitedHealth posted revenues of $60.6 billion, which was in line with the Zacks Consensus Estimate. The same was up 8% year over year, led by double-digit growth at UnitedHealthcare Medicare & Retirement, OptumRx and OptumHealth.

Total operating cost of $55.9 billion was up 7.7% year over year, led by higher medical costs, cost of products sold and depreciation and amortization cost.  

The operating cost ratio of 13.9% improved 110 basis points year over year due to the deferral of the health insurance tax and strong cost management disciplines.

Strong Performance Across Segments

In the reported quarter, the company’s health benefits segment, UnitedHealthcare, generated revenues of $48.6 billion, up 6.1% year over year. Revenue growth was driven by higher enrollment and increase in pricing. All its business groups — Employer and Individual, Medicare and Retirement and Community and State — contributed to growth in earnings. Earnings from operations were up 12.1% year over year to $2.6 billion, led by revenue growth and cost control.

Revenues from Optum improved 13.4% year over year to $28 billion, reflecting strong contributions from the sub-segments — OptumHealth (up 20.3%), OptumInsight (7%) and OptumRx (11.7%). Earnings from operations jumped 13.8% year over year to $2.1 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.

Membership Enrollment Increases

The company served 49.53 million people in the quarter, up 1.4% year over year. It was led by growth in members, served in the Commercial, Medicare and International segments, partially offset by lower Medicaid membership.

Capital Position Update

Cash flow from operations declined 26% year over year to $9.1 billion.
Cash and short-term investments at quarter-end were $17.3 billion, up 21% year over year.

Share Buyback and Dividend Payment

During the second quarter, dividend payments grew 20% year over year to $1 billion and $1.5 billion of shares were repurchased.

2019 Guidance Raised

Following a strong first-half 2019 performance, UnitedHealth moved up its 2019 adjusted earnings per share guidance to $14.70-$14.90 from $14.50-14.75, earlier.

Business Update

During the quarter, UnitedHealth closed the buyout of DaVita Medical Group, a unit of DaVita Inc. DVA, for $4.3 billion in cash.

Our Take    

UnitedHealth’s vast and diversified business operations, spanning from health benefit to health services, and a number of accretive acquisitions, that have driven its performance from the past several years, will be the growth catalysts this year too.

Moreover, a solid balance sheet will enable acquisitions that should drive inorganic growth. Good command on controlling medical cost should aid its margins.

Zacks Rank and Other Stocks That Warrant a Look

UnitedHealth, with a Zacks Rank #4 (Sell), has got this reporting cycle off to a flying start. While the other players in the healthcare space are lined up to report financial results, below are three stocks, poised to beat on earnings per the proven Zacks model.

Here are some companies worth considering in the healthcare sector as our model shows that these have the right combination of elements to beat estimates this time around:

Anthem Inc. ANTM has an Earnings ESP of +0.29% and a Zacks Rank of 3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Celgene Corp. CELG has an Earnings ESP of +6.28% and is a Zacks #3 Ranked stock.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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