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Will Higher Revenues Aid UnitedHealth's (UNH) Q2 Earnings?

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UnitedHealth Group Inc. (UNH - Free Report) is scheduled to release second-quarter earnings results on Jul 17, 2018, before the opening bell. The company is anticipated to deliver a positive earnings surprise.

Revenue growth at both UnitedHealthcare and Optum segments is expected to aid the company’s second-quarter earnings results, offset by increased expenses due to additional investments and operating costs.

Factors to Affect Q2 Results

For the company’s UnitedHealthcare segment, we expect revenue growth from its Medicare and Retirement sub-segments from higher individual product sales and employer-sponsored group retiree plans. Its international business is expected to gain from an increased number of people serving in Chile, Colombia and Peru.

We expect Optum, the company’s health service business, to be a significant contributor to its earnings. Optum’s sub-segment Optum Health’s earnings are anticipated to be driven by growth in care delivery, and behavioral, digital consumer engagement and health financial services; while its sub-segment OptumInsight’s revenues are expected to be driven by an expansion in payer technology and services, and care provider advisory services. The Zacks Consensus Estimate for revenue from this segment is $24.9 billion up 9.7% year over year.

The company’s membership growth is anticipated to be driven by higher Medicaid and Medicare Advantage enrollments. In the commercial group market we expect membership gains in services to small groups, which should drive membership in risk-based benefit plans.

However, UnitedHealth is expected to incur additional investment and operating costs in order to accelerate existing initiatives along with artificial intelligence, data analytics, individual health record custodianship, digital health, net promoter score improvements and health-related initiatives in local communities. These accelerated investments will lead to incremental operating expenses of $200-$300 million for 2018. Part of these spending was borne by the company in the second quarter, which might increase operating expenses.

The bottom line is expected to be cushioned by the shares bought back in the second quarter.

Earnings Surprise History

The company has an attractive earnings surprise history, having surpassed estimates in the trailing four quarters, with an average positive surprise of 3.64%. This is depicted in the chart below:

UnitedHealth Group Incorporated Price and EPS Surprise

Why a Positive Surprise Likely?

Our proven model indicates that chances of UnitedHealth beating the Zacks Consensus Estimate are high as it has the right combination of the two key ingredients — a positive Earnings ESP  and a Zacks Rank #3 (Hold) or better. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks ESP: The Earnings ESP for UnitedHealth is +0.73%.

Zacks Rank: UnitedHealth currently has a Zacks Rank #2 (Buy), which increases the predictive power of ESP.

Other Stocks That Warrant a Look

Here are some other companies that you may consider as our model shows that these, too, have the right combination of elements to post an earnings beat this quarter:

Molina Healthcare, Inc. (MOH - Free Report) has an Earnings ESP of +12.12% and a Zacks Rank #2. The company is expected to report second-quarter earnings results on Jul 31.

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

WellCare Health Plans, Inc. (WCG - Free Report) has an Earnings ESP of +7.33% and a Zacks Rank #2. The company is expected to report second-quarter earnings results on Jul 31.

Tenet Healthcare Corporation (THC - Free Report) has an Earnings ESP of +5.37% and a Zacks Rank #3. The company is expected to report second-quarter earnings results on Aug 6.

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