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What's in the Cards for UnitedHealth (UNH) Earnings in Q3?

UnitedHealth Group Inc.’s UNH third-quarter 2019 earnings, scheduled on Oct 15 before the opening bell, are likely to have showcased well-balanced revenue and earnings growth across its different businesses, thereby retaining the positive trend of several previous quarters.

For the to-be-reported quarter, the Zacks Consensus Estimate for earnings is pegged at $3.75, indicating an increase of 9.97% from the year-ago reported figure on revenues of $56.2 billion, which implies an improvement of 5.42% from the prior-year reported number.

In the last reported quarter, higher revenues, strength in both segments — UnitedHealthcare and Optum — and membership growth led to the outperformance.

Factors Likely to Affect Q3

Within the UnitedHealthcare segment in the quarter to be reported, fee-based commercial group business is likely to have increased, primarily owing to an acquisition. Medicare Advantage is also expected to have gained from growth in people served through individual and employer-sponsored group Medicare Advantage plans.

However, we expect a decrease in people served through Medicaid and this is attributable to states adding carriers to the existing programs, reduced enrollment from state efforts to manage eligibility status and the sale of New Mexico Medicaid plan in 2018. Meanwhile, all these are partially offset by uptrends in Dual Special Needs Plans.

In the third quarter, UnitedHealthcare’s revenues and earnings from operations are likely to rise from growth in the number of individuals served through several Medicare products, a higher revenue membership mix and rate hikes for underlying medical cost trends. However, revenue strength might be partially offset by the moratorium on the Health Insurance Industry Tax in 2019.

Meanwhile, earnings from operations are expected to be favorably impacted by efficient operating cost management in the to-be-reported quarter. The Zacks Consensus Estimate for UnitedHealthcare revenues stands at $47.6 billion, suggesting a 3.6% climb from the year-earlier count.

Optum revenues are likely to grow on the back of solid contribution from OptumHealth, OptumInsight and OptumRx in the third quarter. The Zacks Consensus Estimate for segmental revenues is pegged at $28.2 billion, hinting at an 11% ascent from the year-ago reported figure.

OptumHealth revenues are expected to increase from strength and diversity of growth across care delivery, behavioral health services and complex care management in the impending quarterly results. The Zacks Consensus Estimate for this segmental revenues stands at $7.8 billion, suggesting an improvement of 28.7% from the figure reported in the comparable quarter last year.

Optum Insight revenues are likely to be driven by health care operations and technology, revenue management, and payer and advisory services. The Zacks Consensus Estimate for revenues at this segment is pinned at $2.5 billion, implying a rise of 12.9% from the year-ago reported number.

OptumRx revenues are expected to ride on the traction from market share gains and continued diversification of services provided including a higher mix of specialty pharmacy care services. Moreover, we expect to see higher fulfilled adjusted scripts in the third quarter. The Zacks Consensus Estimate for revenues in this segment stands at $17.9 billion, denoting a 2.9% climb from the year-earlier reported number.

Earnings Surprise History

The company boasts an attractive earnings surprise history, having surpassed estimates in the trailing four reported quarters, the average being 3.27%. This is depicted in the chart below:

UnitedHealth Group Incorporated Price and EPS Surprise

UnitedHealth Group Incorporated Price and EPS Surprise
UnitedHealth Group Incorporated Price and EPS Surprise

UnitedHealth Group Incorporated price-eps-surprise | UnitedHealth Group Incorporated Quote

Here is What Our Quantitative Model Predicts:

The proven Zacks model does not conclusively show that UnitedHealth is likely to beat on earnings this reporting cycle because a stock needs to have both a positive Earnings ESP Filter and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as elaborated below.

Earnings ESP: UnitedHealth has an Earnings ESP of -0.50%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter

Zacks Rank: UnitedHealth carries a Zacks Rank #3, which increases the predictive power of ESP. However, its -0.50% ESP in the combination leaves surprise prediction inconclusive.

Stocks That Warrant a Look

Here are some companies worth considering in the healthcare sector as our model shows that these have the right combination of elements to beat estimates this earnings season:

Cigna Corp. CI has an Earnings ESP of +1.53% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Anthem Inc. ANTM has an Earnings ESP of +3.98 and a Zacks Rank of 3.

Humana Inc. HUM has an Earnings ESP of +1.21% and is Zacks #3 Ranked.

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