A month has gone by since the last earnings report for UnitedHealth Group (UNH). Shares have added about 8.9% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is UnitedHealth due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
UnitedHealth Q1 Earnings Beat Estimates, Guides Up
UnitedHealth Group Inc. first-quarter 2019 earnings of $3.73 per share surpassed the Zacks Consensus Estimate by 3.6%. The same was up 22.7% year over year.
Higher revenues, strength in both segments — UnitedHealthcare and Optum — plus membership growth led to this outperformance.
Strong Operating Performance
UnitedHealth posted revenues of $60.3 billion, which beat the Zacks Consensus Estimate by 1%. The same was up 9.2% year over year, led by UnitedHealthcare Medicare & Retirement, OptumRx and OptumHealth.
Total operating cost of $55.5 billion was up 8.5% year over year, led by higher medical costs, cost of products sold and depreciation and amortization cost.
The operating cost ratio of 14.1% improved 130 basis points year over year, due to the deferral of the health insurance tax and strong cost management disciplines.
Strong Performance Across Segments
In the reported quarter, the company’s health benefits segment, UnitedHealthcare, generated revenues of $48.9 billion, up 7.6% year over year. Revenue growth was driven by higher enrollment and increase in pricing. Earnings from operations grew 25% year over year to $3 billion.
Revenues from Optum improved 11.7% year over year to $26.4 billion, reflecting strong contributions from the sub-segments — OptumHealth, OptumInsight and OptumRx. Earnings from operations jumped 14% year over year to $1.9 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 49.73 million people in the quarter, up 1.8% year over year. It was led by growth in members, served in the Commercial, Medicare and international segments, partially offset by lower Medicaid membership.
Capital Position Update
First-quarter cash flow from operations declined to $3.3 billion compared with $8.4 billion generated in the year-ago quarter.
Cash and short-term investments at quarter-end were $15.7 billion, up 9.8% year over year.
Debt-to-total capital ratio at the end of the first quarter was 45.8%, up from 40.2% as of Dec 31, 2018.
Share Buyback and Dividend Payment
During the first quarter, dividend payments grew 19.1% year-over-year to $860 million, $3 billion of shares were repurchased.
2019 Guidance Raised
UnitedHealth moved up its 2019 adjusted earnings per share guidance to $14.50-14.75 ($14.40-¬14.70 earlier).
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
At this time, UnitedHealth has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, UnitedHealth has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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