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UnitedHealth (UNH) Beats on 4Q Earnings, Keeps 2019 Guidance

Zacks Equity Research

UnitedHealth Group Inc.’s UNH 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.

UnitedHealth Group Incorporated Price, Consensus and EPS Surprise

UnitedHealth Group Incorporated Price, Consensus and EPS Surprise | UnitedHealth Group Incorporated Quote

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 $14.40­14.70 (or $13.70­14.00 on a GAAP basis including intangible amortization), which was provided last month by the company.

The company also expects revenue of $243­245 billion and cash flow from operations of $17.3­7.8 billion for 2019.

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 from the past several 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 Other Stocks That Warrant a Look

UnitedHealth, with a Zacks Rank #2 (Buy), has got this reporting cycle off to a flying start. While the other players in the health care space are lined up to report financial results, below are three stocks, poised to beat on earnings per the proven Zacks model.

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

HCA Healthcare, Inc. HCA has an Earnings ESP of +2.09% and a Zacks Rank #1 (Strong Buy). The company is expected to report fourth-quarter earnings results on Jan 29.

Humana Inc. HUM has an Earnings ESP of +0.22% and a Zacks Rank #2. The company is expected to report fourth-quarter earnings results on Feb 6.

Tenet Healthcare Corporation THC has an Earnings ESP of +16.7% and a Zacks Rank #2. The company is expected to report fourth-quarter earnings results on Feb 25.

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