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Is UnitedHealth (UNH) Stock a Buy Heading into Q2 2019 Earnings?

Benjamin Rains

Shares of UnitedHealth Group UNH popped Friday after they surged Thursday to help spur the Dow Jones Industrial Average’s rally that saw it close over 27,000 for the first time ever. The health-care provider climbed after the White House said that the Trump administration will not continue with its plan to try to eliminate rebates from government drug plans.

Now, let’s see if investors should consider buying UNH stock ahead of the release of its Q2 fiscal 2019 financial results, which are due out Thursday, July 18.

Overview

UnitedHealth is a health-care firm that operates both UnitedHealthcare and Optum. UnitedHealthcare is the largest U.S. health insurer, while Optum is a quickly expanding health-services provider. UNH in late June bought PatientsLikeMe, which helps connect people with similar health conditions and refers to itself as the “world’s largest personalized health network.”

This came after UnitedHealth agreed earlier last month to buy health-care payments firm Equian LLC for roughly $3.2 billion. Equian’s health-care and insurance-focused payment processing services aim to reduce mistakes.

The two recent acquisitions are part of a growing arms race in the industry to bolster patient data technology and payment offerings. UnitedHealth, which brought in $226.3 billion in revenue in 2018, has also started to experiment with blockchain technology.

Shares of UNH were up 1.64% to $265.43 through morning trading Friday, roughly 8% off their 52-week week intraday highs of $287.94. UnitedHealth stock had been hit recently by growing concerns about Democratic presidential candidates pushing so-called “Medicare for All’ plans, along with other overarching government-coverage plans.

Despite these worries, UnitedHealth posted stronger-than projected Q1 2019 results and upped its profit targets.

Q2 Outlook & Earnings Trends

Looking ahead, our current Zacks Consensus Estimate calls for the company’s adjusted second-quarter 2019 earnings figure to climb 10.2% to $3.46 per share. This would mark a slowdown compared to Q1’s 23% bottom-line expansion, which topped our projection. UNH almost always beats quarterly earnings estimates and has posted a 3.3% average surprise over the trailing four periods.

UnitedHealth has seen its longer-term earnings estimates revisions trend upward recently. With that said, UNH’s Q2 estimates have moved in the wrong direction in the last seven days. Of course, analysts could provide updated guidance as we get closer to the firm’s actual release date.

At the top of the income statement, UNH’s Q2 revenue is expected to jump 8.2% to $60.67 billion. Last quarter, the company’s top-line jumped roughly 9% to $60.3 billion to top our estimate. UnitedHealth has now surpassed our consensus revenue estimates in three out of the last four quarters.

 

 

Bottom Line

UnitedHealth is a Zacks Rank #2 (Buy) right now, based in large part on its longer-term positive earnings estimate revision activity. On top of that, the company full-year fiscal 2019 EPS figure is projected to jump 14.13% on 7.7% higher revenue. Peeking further head, the firm’s 2020 top and bottom lines are expected to climb at nearly the exact same clips above our current year estimates in a sign of continued strength.

UNH also boasts an “A” grade for Value and a “B” for Growth in our Style Scores system, and is a dividend payer with a 1.65% yield at the moment. In the end, it seems like UnitedHealth might be worth considering heading into earnings, especially when taking into account its overall outlook through fiscal 2020.

UnitedHealth is set to report its second-quarter 2019 financial results before the market opens on Thursday, July 18. Meanwhile, Investors interested in the broader health-care field might also want to take a look at #1 (Strong Buy)-ranked Magellan Health MGLN and Molina Healthcare MOH, with Anthem ANTM currently a Zacks Rank #3 (Hold).

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