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UnitedHealth (UNH) Q4 Earnings Beat on Revenue Growth

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UnitedHealth Group Inc.’s (UNH - Free Report) fourth-quarter 2019 earnings of $3.90 per share surpassed the Zacks Consensus Estimate by 3.4%. Earnings were up 19% 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.

Strong Operating Performance

UnitedHealth posted revenues of $60.9 billion, which came in line with the Zacks Consensus Estimate. Revenues were up 3.8% year over year, led by double-digit growth at UnitedHealthcare Medicare & Retirement, OptumRx and OptumHealth.

Total operating cost of $55.8 billion was up 3.5% year over year, due to higher medical costs and operating cost.    

2019 Results

Revenues of $242 billion grew 7% year over year. Earnings per share of $15.11 grew 17.3% year over year and came in ahead of the company’s earlier provided guidance of $14.90-$15.

Strong Performance Across Segments

In the reported quarter, the company’s health benefits segment, UnitedHealthcare, generated revenues of $48.2 billion, up 4.3% year over year. Revenue growth was driven by higher enrollment and increase in pricing.

The company’s business groups — Employer and Individual, Medicare and Retirement — contributed to the growth. Earnings from operations were up 15.5% year over year to $2.1 billion, led by revenue growth.

Revenues from Optum improved 8.3% year over year to $29.8 billion, reflecting strong contributions from the sub-segments, OptumHealth (up 30.2%) and OptumInsight (14.4%). Earnings from operations jumped 12% year over year to $3 billion.

Increase in Membership Enrollment

The company served 49.15 million people in the quarter, up 0.2% 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

During the year, cash flow from operations increased 17.5% year over year to $18.46 billion.

Cash and short-term investments at quarter-end were $14.24 billion, down 0.6% year over year.

2020 Guidance Update

The company affirmed its recently issued earnings outlook for 2020, including net earnings of $15.45 to $15.75 per share and adjusted net earnings of $16.25 to $16.55 per share.

Our Take    

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 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 has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the healthcare space are The Joint Corp. (JYNT - Free Report) , WellCare Health Plans, Inc. and Cigna Corp. (CI - Free Report) .  While The Joint Corp sports a Zacks Rank #1 (Strong Buy), Cigna and WellCare carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Joint Corp., WellCare and Cigna are expected to reported earnings growth in the to-be-reported quarter of 33.3%, 33.7% and 70.3%, respectively.

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