UnitedHealth Group Inc.’s (UNH - Free Report) third-quarter 2019 earnings of $3.88 per share surpassed the Zacks Consensus Estimate by 3.5%. The same was up 13.8% 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. The reported quarter was not an exception.
UnitedHealth Group Incorporated Price, Consensus and EPS Surprise
Strong Operating Performance
UnitedHealth posted revenues of $60.4 billion, beating the Zacks Consensus Estimate by 1.3%. The same was up 7% year over year, led by double-digit growth at UnitedHealthcare Medicare & Retirement, OptumRx and OptumHealth.
Total operating cost of $55.3 billion was up 6.3% year over year, led by higher medical costs and operating cost.
The operating cost ratio of 14.8% improved 20 basis points year over year due to the deferral of the health insurance tax and continued effect of operating cost productivity improvements.
Strong Performance Across Segments
In the reported quarter, the company’s health benefits segment, UnitedHealthcare, generated revenues of $48.1 billion, up 4.7% year over year. Revenue growth was driven by higher enrollment and increase in pricing.
Its business groups — Employer and Individual, Medicare and Retirement and Global — contributed to the growth. Earnings from operations were up 3.8% year over year to $2.7 billion, led by revenue growth and cost control.
Revenues from Optum improved 13.4% year over year to $28.8 billion, reflecting strong contributions from the sub-segments — OptumHealth (up 34.4%), OptumInsight (16.1%) and OptumRx (5.8%). Earnings from operations jumped 20% year over year to $2.4 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.
Increase in Membership Enrollment
The company served 49.39 million people in the quarter, up 0.8% year over year. It was led by growth in members, served in the Commercial and Medicare Advantage and partially offset by lower Medicaid and International membership.
Capital Position Update
Cash flow from operations declined 8% year over year to $12.2 billion in the first nine month of 2019.
Cash and short-term investments at quarter-end were $15.8 billion, up 10.4% year over year.
Share Buyback and Dividend Payout
During the third quarter, dividend payout grew 20% year over year to $1 billion and $600 million of shares were repurchased.
2019 Guidance Raised
Following a strong third-quarter 2019 performance, UnitedHealth raised its 2019 adjusted earnings per share guidance to $14.90-$15 from $14.7-14.9 guided earlier.
UnitedHealth’s vast and diversified business operations, spanning from health benefit to health services, and a number of accretive acquisitions that have driven its performance over the years, will be the growth catalysts this year too.
Moreover, a solid balance sheet will enable acquisitions that should drive inorganic growth. Good command on controlling medical cost should aid its margins.
Zacks Rank and Stocks That Warrant a Look
UnitedHealth, with a Zacks Rank #4 (Sell), has got this reporting cycle off to a flying start.
Some better-ranked stocks in the same space are Molina Healthcare, Inc. (MOH - Free Report) , Humana Inc. (HUM - Free Report) , and Cigna Corp. (CI - Free Report) . While Molina Healthcare sports a Zacks Rank #1 (Strong Buy), Humana and Cigna Corp. carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Humana, Molina Healthcare and Cigna are expected to reported earnings growth by 21.%, 8.4%, and 18%, respectively.
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