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Robust Revenues to Drive UnitedHealth's (UNH) Q4 Earnings

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We expect UnitedHealth Group Inc. (UNH - Free Report) results for the fourth quarter of 2107 to show broad-based growth across all segments of the enterprise. The company will reslease results on Jan 16, before the opening bell.

Notably, UnitedHealth Care segment is expected to witness an increase in membership across its employer-sponsored, Medicare, Medicaid and international medical benefit offerings, which should drive revenue growth.

Factors Likely to Impact Fourth-Quarter Earnings:

Higher Revenues from Medicare Business: UnitedHealth has been performing strongly in its government business, which includes Medicare and Medicaid. We expect a solid Medicare Advantage performance to continue in the fourth quarter, driven by the combination of premium and benefit stability, rising stars rating performance, improved service and a clinical performance, all leading to record retention rates.

Revenues in the Medicare & Retirement line of business are expected at $16.4 billion per the Zacks Consensus Estimate, thereby reflecting year-over-year growth of 17%.

Higher Enrollment in Public and Senior Segment: The company’s Medicaid business is also performing well with continued growth in membership enrollment. The same is expected in the fourth 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 fourth quarter on higher membership in Medicare Advantage and Medicaid plans. Enrollment in the company’s Public and Senior segment is likely to be 15.4 billion per the Zacks Consensus Estimate, up 11.7% year over year.

Revenue Growth from Optum: Results should also show a rise in revenues from its health services’ segment, Optum, driven by higher contribution from subsegments namely, OptumHealth, OptumInsight and OptumRx. Per the Zacks Consensus Estimate, revenues from the segment should be nearly $24 billion, up 8.2% year over year.

Disciplined Share Buyback: The bottom line should further get a cushion from the shares repurchased in the fourth quarter.

However, earnings will be partially offset by lesser people, served through individual products as the company withdrew itself from most of the individual public exchange markets.

Earnings Surprise History

The company boasts an attractive earnings surprise history, having surpassed the Zacks Consensus Estimate in all the trailing four quarters with an average beat of 4.4%.

UnitedHealth Group Incorporated Price and EPS Surprise

What Our Quantitative Model Predicts:

Our proven model does not conclusively show that UnitedHealth is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1, 2 or 3 for this to happen. But that is not the case here as you will see below.

Zacks ESP: UnitedHealth has an Earning ESP of -0.17%. 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), which increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise. The company’s negative ESP thus leaves the case inconclusive.

We caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are a few companies worth considering with the right combination of elements to deliver an earnings beat this quarter:  

Centene Corp. (CNC - Free Report) is expected to report fourth-quarter earnings performance on Feb 6. The company has an Earnings ESP of +0.58% and a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Anthem Inc. (ANTM - Free Report) has an Earnings ESP of +0.15% and a Zacks Rank #2 (Buy). The company is expected to release fourth-quarter earnings results on Jan 31.

athenahealth, Inc. (ATHN - Free Report) has an Earnings ESP of +1.63% and a Zacks Rank #3. The company is expected to announce fourth-quarter earnings results on Feb 1.

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