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UnitedHealth (UNH) Q3 Earnings Likely to Beat: Here's Why?

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We expect health insurer UnitedHealth Group Inc. (UNH - Free Report) to beat expectations when it reports third-quarter results on Oct 17, before market opens.

Why a Likely Positive Surprise?

Our proven model shows that UnitedHealth has the right combination of the two key ingredients to beat earnings estimates.

Zacks ESP:  Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +0.94%. This is because the Most Accurate estimate of $2.61 is pegged higher than the Zacks Consensus Estimate of $2.56.

The positive ESP is a meaningful indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: UnitedHealth carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank of #1, 2 or 3 have a significantly higher chance of beating on earnings.

UnitedHealth Group Incorporated Price and EPS Surprise

What is Driving the Better-Than-Expected Earnings?

We expect the quarter’s results to show broad-based growth across the enterprise.

Its segment, UnitedHealth Care, is expected to witness an increase in membership across its employer-sponsored, Medicare, Medicaid and international medical benefit offerings.

The company has been performing strongly in its government business which includes Medicare and Medicaid. We expect solid Medicare advantage performance to continue in the third quarter driven by the combination of premium and benefit stability, rising stars rating performance, and improved service and clinical performance, all leading to record retention rates.

The company’s Medicaid business is also performing well with continued growth in membership enrollment. The same is expected in the third quarter through new contract awards from states for Managed Medicaid business, as well as for expanded services for additional segments of the Medicaid eligible population.

We expect to see increased enrollment in the third quarter driven by increased membership in Medicare Advantage, Commercial and Medicaid plans.

Results should also show an increase in revenues from its health services’ segment Optum, driven by higher contribution from sub-segments OptumHealth, OptumInsight and OptumRx.

Earnings will, however, be partially offset by a reduction in the number of people served through individual products as the company withdrew from almost all individual public exchange markets.

The company’s bottom line will be cushioned by cost-control initiatives and capital management by way of share buyback.

Other Stocks That Warrant a Look

Here are some companies in the same space that you may also consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:  

Humana Inc. (HUM - Free Report) is expected to report third-quarter 2017 earnings results on Nov 8. The company has an Earnings ESP of +0.86% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.   .

Cigna Corp. (CI - Free Report) has an Earnings ESP of +1.26% and a Zacks Rank #1. The company is expected to report third-quarter earnings results on Nov 2.

Aetna Inc. has an Earnings ESP of +1.78% and a Zacks Rank #2 (Buy). The company is expected to report third-quarter earnings results on Oct 31.

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