UnitedHealth Group Inc. UNH reported third-quarter 2016 earnings of $2.17 per share, beating the Zacks Consensus Estimate of $2.08. Earnings improved 23% year over year.
The earnings beat came on the back of higher revenues. Strong results from the health services business Optum and increased membership contributed to the outperformance.
UnitedHealth has been surpassing expectations in the last several quarters. While the stock gained 1.10% in the pre-market trading session, we expect continued outperformance to drive the stock higher.
FindTheCompany | Graphiq
Behind the Headline
UnitedHealth posted revenues of $46.3 billion, outperforming the Zacks Consensus Estimate of $45.9 billion. The top line grew 12% year over year. The increase was an outcome of business expansion in both health care benefits and health care services.
The company reported medical care ratio of 80.3%, down 60 basis points year over year.
Total operating cost came in at $42.7 billion, 11% higher year over year. The increase stemmed primarily from higher medical and operating costs.
Operating cost ratio of 15.2% increased 30 basis points year over year due to increased levels of investment.
In the reported quarter, UnitedHealth’s health benefits segment – UnitedHealthcare – witnessed revenue growth of 13% year over year to $37.2 billion. Earnings from operations increased 13% year over year to $2.1 billion.
Revenues from Optum improved 9% year over year to $21.1 billion. Earnings from operations surged 28% year over year to $1.5 billion mainly driven by a 23% increase in revenues from the sub-segment OptumHealth. Continued focus on accelerating growth as well as improving margins and productivity through enhanced integration and business alignment led to the overall improvement of this segment.
The company’s Medical membership increased to 48.09 million in the third quarter from 47.98 million in the prior-year quarter.
Cash and short-term investments at quarter end were $15.7 billion, up 22% from the 2015-end level.
Debt-to-total-capital ratio was 46.9% at the end of the third quarter, down 200 basis points year over year. As expected, the ratio improved due to a decline in the debt level.
Cash flows from operations in the quarter were $7.2 billion. After adjusting to reflect cash received from CMS, third-quarter cash flows from operations of $3.4 billion increased 22% year over year.
UnitedHealth raised its 2016 earnings guidance to $8.00 per share from the previous estimate of $7.80 to $7.90. GAAP earnings per share are expected at $7.45 compared with $7.25 to $7.40 projected earlier.
UNITEDHEALTH GP Price, Consensus and EPS Surprise
UNITEDHEALTH GP Price, Consensus and EPS Surprise | UNITEDHEALTH GP Quote
UnitedHealth’s results reflect broad-based growth across its different business segments. Going forward, higher membership, a strong balance sheet and a niche market position are some of the other positives that UnitedHealth should benefit from. Also, the company’s planned exit from the unprofitable exchange business should shield it from losses.
Currently, UnitedHealth carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Peek Into Key Players’ Expected Earnings
Below are some other stocks that are expected to beat third-quarter earnings estimates based on their favorable Zacks Rank and positive Earnings ESP.
VCA Inc. WOOF operates as an animal healthcare company in the United States and Canada. It has an Earnings ESP of +1.24% and carries a Zacks Rank #2. The company is slated to report earnings on Oct 26.
ICON Public Limited Company ICLR is a contract research organization that provides outsourced development services to the pharmaceutical, biotechnology and medical device industries in the United States and internationally. It has an Earnings ESP of +0.85% and a Zacks Rank #2. The company is slated to report earnings on Oct 20.
Aetna Inc. AET operates as a health care benefits company in the United States. It has an Earnings ESP of +1.49% and a Zacks Rank #3. The company is slated to report earnings on Oct 27.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
AETNA INC-NEW (AET): Free Stock Analysis Report
UNITEDHEALTH GP (UNH): Free Stock Analysis Report
VCA INC (WOOF): Free Stock Analysis Report
ICON PLC (ICLR): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research