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UnitedHealth (UNH) Beats on Q1 Earnings, Ups EPS 2023 View

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UnitedHealth Group Incorporated (UNH - Free Report) has reported first-quarter 2023 adjusted earnings of $6.26 per share, which beat the Zacks Consensus Estimate of $6.24 and our estimate of $6.17. The bottom line improved from the $5.49 per share reported a year ago.

The company’s quarterly performance was driven by sustained membership growth in its UnitedHealthcare business. Strong expansion in value-based arrangements at the Optum Health segment also contributed to the upside. However, the upside was partly offset by elevated operating costs.

Revenues were $91.9 billion for the first quarter, which climbed from $80.1 billion a year ago on the back of sound contributions made by the UnitedHealthcare and Optum business lines. The top line beat the consensus mark of $89.3 billion and our estimate of $88.9 billion.

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

Q1 Business Performance

The medical care ratio of UnitedHealth deteriorated 20 basis points year over year to 82.2% in the quarter under review, beating our estimate of 82.4%.

The first-quarter 2023 operating cost ratio of 14.8% climbed from 14.2% last year on the back of business mix and continued investments undertaken by UNH to pursue growth opportunities. This was partially offset by consistent productivity gains.

Total operating costs amounted to $83.8 billion in the first quarter, which increased from $73.2 billion, higher than our estimate of $80.9 billion. The year-over-year increase was due to higher medical costs, operating expenses and cost of products sold.

First-quarter operating earnings were $8,086 million, up from $6,950 million a year ago, which beat our estimate of $7,909.5 million.

The net margin of 6.1% decreased from 6.3% a year ago and missed our estimate of 6.2%.

Business Platforms’ Performances

The health benefits business of UnitedHealth, UnitedHealthcare, reported revenues of $70.5 billion, which improved from $62.6 billion a year ago and beat our estimate of $68.4 billion.

Earnings from operations climbed to $4.3 billion in the first quarter from $3.8 billion in the prior-year period and beat our estimate of $3.7 billion. The operating margin was at 6.2%, up from 6.1% a year ago. The improvement can be attributed to strong membership growth, and consistent management of medical and operating costs.

Revenues from another business line, Optum, totaled $54.1 billion, up from $43.3 billion in the year-ago period on the back of significant growth across each of the segments. Also, it beat our estimate of $51 billion.

The Optum Health segment, which has been gaining from a greater number of people served under value-based care arrangements and consistent strengthening of care delivery services, contributed the most to Optum’s top-line growth.

Optum Insight and Optum Rx segments also exhibited impressive performances in the first quarter. While Optum Insight revenues gained primarily on the addition of Change Healthcare, the performance of Optum Rx benefited from the broadening of pharmacy care services.

Earnings from overall Optum business operations grew to $3.7 billion in the quarter under review, up from the year-ago level of $3.2 billion. The operating margin was at 6.9%, down from 7.3% a year ago.

The Uptick in Membership Enrollment

The UnitedHealthcare segment catered to 52,890 thousand people as of Mar 31, 2023, up from 50,965 thousand a year ago and beating our estimate of 52,211 thousand, owing to the overall domestic medical offerings of the unit.

Financial Position (as of Mar 31, 2023)

UnitedHealth exited the first quarter with cash and short-term investments of $46.5 billion, which increased from the 2022-end level of $27.9 billion. Total assets of $283.7 billion climbed from the figure of $245.7 billion at the 2022-end.

Long-term debt, less current maturities of $60.7 billion, escalated from the 2022-end figure of $54.5 billion. The short-term borrowings and current portion of long-term debt were at $9.9 billion.

Return on equity for the first quarter of 2023 was 28.2%.

Increase in Cash Flows

In the reported quarter, UnitedHealth generated cash flows from operations of $16.3 billion, which jumped from the prior-year level of $5.3 billion.

Share Repurchase and Dividend Update

In first-quarter 2023, UnitedHealth rewarded its shareholders with share repurchases of $2 billion and dividends of $1.5 billion.

2023 Guidance

Earlier, the company provided top-line guidance of $357-$360 billion for 2023, suggesting a rise from the 2022 reported level of $324.2 billion. UNH expected an operating cash flow of $27-$28 billion for 2023.

Adjusted net earnings are expected to be $24.50-$25 per share, up from the previously mentioned $24.40-$24.90 per share, whereas it reported $22.19 in 2022.

Zacks Rank & Stocks to Consider

UnitedHealth currently carries a Zacks Rank #3 (Hold). Investors interested in the broader medical space may look at better-ranked players like Avanos Medical, Inc. (AVNS - Free Report) , Viemed Healthcare, Inc. (VMD - Free Report) and The Ensign Group, Inc. (ENSG - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Avanos Medical’s 2023 earnings implies 1.8% year-over-year growth. AVNS beat earnings estimates in all the past four quarters, with the average being 11%.

The consensus mark for Viemed’s 2023 earnings indicates an 87.5% year-over-year increase. The consensus estimate for VMD’s 2023 revenues suggests 15% year-over-year growth.

The Zacks Consensus Estimate for Ensign Group’s 2023 earnings implies 13% year-over-year growth. The consensus mark for ENSG’s 2023 revenues indicates an 18.4% year-over-year increase.

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