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UnitedHealth (UNH) Stock Declines 3.4% on High Medical Costs
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UnitedHealth Group Incorporated (UNH - Free Report) shares fell 3.4% on Friday despite coming up with a strong fourth-quarter performance. Investor confidence wavered due to a significant increase in UNH's medical costs. This downturn also affected other prominent healthcare and insurance providers following the announcement.
Medical Costs
The company reported medical costs of $62.2 billion in the fourth quarter, up 16.1% year over year. The figure was more than 6% higher than our expectation. As more seniors resumed elective procedures, claims rose in UNH’s Medicare Advantage business. This was the case for most of the last year. UnitedHealth covers around 7.7 million people through its Medicare Advantage plans.
Near the end of 2023, claims increased due to several reasons, including COVID-19 activities, RSV vaccination and some other utilization of services. Its fourth-quarter medical care ratio of 85% deteriorated 220 basis points year over year, which was much higher than the Zacks Consensus Estimate of 83.9% and our estimate of 83.4%.
Effect on Estimates
Some of the costs, triggered by vaccinations and COVID, are expected to be short-lived in nature. Despite the rise witnessed in medical costs in 2023, the company expects no impact on its 2024 expectations. It earlier provided adjusted net earnings per share guidance within $27.50 and $28.00 for 2024, the mid-point of which indicates an improvement of 10.5% from the 2023 figure of $25.12.
The Zacks Consensus Estimate for the bottom line for 2024 is pegged at $27.88 per share. The consensus mark for 2024 revenues is pegged at $401.7 billion, up 8.1% year over year. The consensus estimate for the medical care ratio for 2024 is pegged at 83.42%. Late last November, it projected 2024 operating cash flows within $30-$31 billion. The 2023 operating cash flow was at $29.1 billion.
Other Companies Slipped
Spooked by the rise in medical costs, investors traded carefully in the Medical – HMOs industry on Friday. Humana shares followed UNH’s path and fell 3.6%, while CVS Health declined 3%. Another company, Elevance Health, which has a strong Medicare Advantage business, witnessed a 1.5% decline on Friday.
1-Year Price Performance
UnitedHealth shares have gained 6.5% in the past year compared with the industry’s 4.6% growth.
Image Source: Zacks Investment Research
Zacks Rank & Key Picks
UnitedHealth currently has a Zacks Rank #4 (Sell).
The Zacks Consensus Estimate for Brookdale Senior’s full-year 2023 earnings indicates a 49.6% year-over-year improvement. HQY beat earnings estimates in three of the past four quarters and missed once, with an average surprise of 23.5%.
The Zacks Consensus Estimate for Centene’s 2023 full-year earnings implies a 15.1% increase from the year-ago reported figure. The consensus mark for its current-year revenues is pegged at $150.8 billion, up 4.4% year over year. CNC beat earnings estimates in two of the last four quarters and missed twice, with an average surprise of 5.6%.
The Zacks Consensus Estimate for Motus GI’s 2023 bottom line suggests a 67.2% year-over-year improvement. MOTS has witnessed one upward estimate revision over the past 30 days against no movement in the opposite direction. It beat earnings estimates in all the last four quarters, with an average surprise of 40.2%.
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UnitedHealth (UNH) Stock Declines 3.4% on High Medical Costs
UnitedHealth Group Incorporated (UNH - Free Report) shares fell 3.4% on Friday despite coming up with a strong fourth-quarter performance. Investor confidence wavered due to a significant increase in UNH's medical costs. This downturn also affected other prominent healthcare and insurance providers following the announcement.
Medical Costs
The company reported medical costs of $62.2 billion in the fourth quarter, up 16.1% year over year. The figure was more than 6% higher than our expectation. As more seniors resumed elective procedures, claims rose in UNH’s Medicare Advantage business. This was the case for most of the last year. UnitedHealth covers around 7.7 million people through its Medicare Advantage plans.
Near the end of 2023, claims increased due to several reasons, including COVID-19 activities, RSV vaccination and some other utilization of services. Its fourth-quarter medical care ratio of 85% deteriorated 220 basis points year over year, which was much higher than the Zacks Consensus Estimate of 83.9% and our estimate of 83.4%.
Effect on Estimates
Some of the costs, triggered by vaccinations and COVID, are expected to be short-lived in nature. Despite the rise witnessed in medical costs in 2023, the company expects no impact on its 2024 expectations. It earlier provided adjusted net earnings per share guidance within $27.50 and $28.00 for 2024, the mid-point of which indicates an improvement of 10.5% from the 2023 figure of $25.12.
The Zacks Consensus Estimate for the bottom line for 2024 is pegged at $27.88 per share. The consensus mark for 2024 revenues is pegged at $401.7 billion, up 8.1% year over year. The consensus estimate for the medical care ratio for 2024 is pegged at 83.42%. Late last November, it projected 2024 operating cash flows within $30-$31 billion. The 2023 operating cash flow was at $29.1 billion.
Other Companies Slipped
Spooked by the rise in medical costs, investors traded carefully in the Medical – HMOs industry on Friday. Humana shares followed UNH’s path and fell 3.6%, while CVS Health declined 3%. Another company, Elevance Health, which has a strong Medicare Advantage business, witnessed a 1.5% decline on Friday.
1-Year Price Performance
UnitedHealth shares have gained 6.5% in the past year compared with the industry’s 4.6% growth.
Image Source: Zacks Investment Research
Zacks Rank & Key Picks
UnitedHealth currently has a Zacks Rank #4 (Sell).
Some better-ranked stocks in the Medical sector are Brookdale Senior Living Inc. (BKD - Free Report) , Centene Corporation (CNC - Free Report) and Motus GI Holdings, Inc. (MOTS - 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 Brookdale Senior’s full-year 2023 earnings indicates a 49.6% year-over-year improvement. HQY beat earnings estimates in three of the past four quarters and missed once, with an average surprise of 23.5%.
The Zacks Consensus Estimate for Centene’s 2023 full-year earnings implies a 15.1% increase from the year-ago reported figure. The consensus mark for its current-year revenues is pegged at $150.8 billion, up 4.4% year over year. CNC beat earnings estimates in two of the last four quarters and missed twice, with an average surprise of 5.6%.
The Zacks Consensus Estimate for Motus GI’s 2023 bottom line suggests a 67.2% year-over-year improvement. MOTS has witnessed one upward estimate revision over the past 30 days against no movement in the opposite direction. It beat earnings estimates in all the last four quarters, with an average surprise of 40.2%.