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UnitedHeath (UNH) Beats on Q1 Earnings, Dodges Coronavirus Curse

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UnitedHealth Group Inc.’s (UNH - Free Report) first-quarter 2020 earnings of $3.72 per share surpassed the Zacks Consensus Estimate by 1.92% and were also up by a penny year over year.

Higher revenues and strength in both segments, namely UnitedHealthcare and Optum led to this outperformance.

The COVID-19 pandemic did not have any material impact on the company’s first-quarter results as the various factors that could have dented its earnings emerged late in the period. These factors were the rising U.S. incidence and response initiatives; multiple investment initiatives including coverage expansions and increased access to critical care and pharmacy services; other funding and support efforts; and lower elective care demand.

Driven by an earnings beat, shares of the company gained 1.86% in pre-market trading.

UnitedHealth’s revenues of $64.4 billion missed the Zacks Consensus Estimate by 0.3%. However, the top line was up 6.8% year over year, aided by broad-based revenue growth across Optum and UnitedHealthcare.

Medical care ratio of 81% improved 100 basis points year over year, mainly owing to return of the health insurance tax, partly offset by extra calendar in the reported quarter.

The operating cost ratio of 15.5% increased 140 basis points due to return of the health insurance tax and business mix, partially offset by productivity improvements.

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

UnitedHealth Group Incorporated Price, Consensus and EPS Surprise

 

Strong Segmental Perfromances

In the reported quarter, the company’s health benefits segment, UnitedHealthcare, generated revenues worth $51.1 billion, up 4.4% year over year. Revenue growth was driven by strong Medicare Advantage and dual special needs plans.

The company’s business groups, namely Employer and Individual, Medicare and Retirement, Community and State contributed to growth, partly offset by lower contribution from Global . Earnings from operations were flat year over year at $2.9 billion, led by revenue growth.

Revenues from Optum improved 24.6% year over year to $32.8 billion, reflecting robust contributions from the sub-segments, OptumHealth (up 36.9%), OptumInsight (13.9%) and OptumRx (up 21%). Earnings from operations jumped 12.2% year over year to $2.1 billion.

Decline in Membership Enrollment

The company served 48.54 million people in the quarter, down 2.4% year over year. this downside was induced by decline in members served in the Commercial and Medicaid and International business.

Mixed Capital Position 

During the year, cash flow from operations of $2.94 billion decreased 9% from the level at 2019  end.

Cash and short-term investments at quarter-end were $24.44 billion, up 71.6% from the level as of Dec 31, 2019.

2020 Guidance Intact

The company reaffirmed its earlier-issued earnings outlook for 2020 including net earnings of $15.45-$15.75 per share and adjusted net earnings of $16.25-$16.55. Further revisions to earnings will depend on how the COVID-19 pandemic unleashes it effect on the company’s business.

Zacks Rank

UnitedHealth has a Zacks Rank #3 (Hold).

Upcoming Releases

Some  stocks poised to surpass earnings estimates for the first quarter owing to their perfect combination of a positive Earnings ESP and a Zacks Rank #1(Strong Buy), 2 (Buy)  or 3 (Hold) are Centene Corp. (CNC - Free Report) , Molina Healthcare, Inc. (MOH - Free Report) and Anthem. Inc. .

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

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