It has been about a month since the last earnings report for UnitedHealth Group (UNH - Free Report) . Shares have added about 0.9% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is UnitedHealth due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
UnitedHealth Beats on 4Q Earnings, Keeps 2019 Guidance
UnitedHealth Group Inc.’s fourth-quarter 2018 earnings of $3.28 per share surpassed the Zacks Consensus Estimate by 2.5%. The same was up 27% year over year.
Higher revenues, strength in both segments — UnitedHealthcare and Optum — plus membership growth led to this outperformance.
UnitedHealth has a tradition of guiding conservatively and then surpassing its own estimates to surprise investors as was seen this quarter.
Strong Operating Performance
UnitedHealth posted revenues of $58.4 billion, which beat the Zacks Consensus Estimate by 0.9%. The same was up 12.2% year over year, led by strong revenue growth rates across both UnitedHealthcare and Optum segments.
Total operating cost of $53.9 billion was up 12% year over year, led by higher medical costs, operating cost, cost of products sold and depreciation and amortization cost.
Operating margin of 7.7% in the fourth quarter improved 10 basis points year over year.
Strong Performance Across Segments
In the reported quarter, the company’s health benefits segment, UnitedHealthcare, generated revenues of $46.2 billion, up 11% year over year. Revenue growth was driven by higher enrollment and increase in pricing. Earnings from operations remained unchanged year over year at $1.8 billion.
Revenues from Optum improved 13% year over year to $27.6 billion, reflecting strong contributions from the sub-segments — OptumHealth, OptumInsight and OptumRx. Earnings from operations jumped 23% year over year to $2.7 billion. Steady focus on accelerating growth, as well as improving margins and productivity through enhanced integration and business alignment, led to the segment’s overall improvement.
Membership Enrollment Increases
The company served 49.08 million people in the quarter, up 5.1% year over year, led by growth in members served in the Public and Senior, and International segments, partially offset by lower Commercial membership.
Capital Position Update
Cash and short-term investments at quarter-end were $14.3 billion, down 7.5% year over year.
Debt-to-total capital ratio was 40.2%, up 130 basis points sequentially.
Cash flow from operations grew 16% year over year to $15.7 billion.
2019 Guidance Affirmed
UnitedHealth reaffirmed its 2019 adjusted earnings per share guidance of $14.40¬14.70 (or $13.70¬14.00 on a GAAP basis including intangible amortization), which was provided last month by the company.
The company also expects revenue of $243 - $¬245 billion and cash flow from operations of $17.3¬7.8 billion for 2019.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month.
Currently, UnitedHealth has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise UnitedHealth has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.