UnitedHealth Group Inc.
(
UNH
) has kicked off the earnings season today for the health insurance
sector by reporting first quarter earnings of $1.31 per share,
substantially higher than the Zacks Consensus Estimate of $1.16.
Earnings also compared favorably with $1.22 per share reported in
the prior-year quarter.
The outperformance can be attributed to strong revenue growth at
UnitedHealthcare, higher revenues from the Optum businesses, and
strong enrollment growth, partially offset by higher operating
costs.
The largest publicly traded health insurer (based on total
revenue) posted revenues of $27.3 billion, an increase of 7.5% year
over year, and up by a modest 0.4% compared to the Zacks Consensus
Estimate of $27.2 billion. The increase was led by higher premiums
and higher product revenue in the health benefits business
(UnitedHealth Care), coupled with strong revenue growth from the
service segment.
UnitedHealth's medical costs went up 6.4% year over year to
$19.9 billion. Total operating costs increased 7.3% year over year
to $25.0 billion, led by growth initiatives undertaken in the
pharmacy benefits business.
Segment performance
During the quarter, UnitedHealth's health benefits segment named
UnitedHealthcare witnessed revenue growth of 7.0% year over year to
$25.5 billion. Earnings from operations grew 9% to $2.1
billion.
The company's other segment, the health services segment branded
as Optum, witnessed a growth of 7.4% year over year to $7.3
billion. The company is aggressively expanding this segment as a
means to diversify its earnings. It expects Optum to contribute
more than 30% of the earnings mix.
Membership Enrollment
UnitedHealth, the second-largest insurer after
WellPoint Inc.
(
WLP
) based on enrollment, showed strong enrollment trends, as
membership increased sequentially across all major business lines.
Total commercial enrollment was up 2.3% sequentially, and up 3.3%
year over year.
Medicaid grew 1.8% sequentially and 5.9% year over year, whereas
Medicare Advantage grew 11.4% sequentially and 15.2% year over
year. The company expects membership growth in the range of 1.7
million -1.9 million for fiscal 2012, higher than the earlier
forecast of 750,000 members.
Capital Position
UnitedHealth continues to maintain a healthy balance sheet,
ending the quarter with a debt-to-capital ratio of 31%, though
slightly higher than 29% in the last quarter. Days sales
outstanding were 9 days, unchanged relative to the prior-year
quarter. Days claims payable (DCP) were 47 days, up 1 day year over
year.
Share Repurchases
Historically, repurchases and acquisitions have been one of the
most prevalent uses of capital for the company. During the quarter,
the company bought back 18.5 million shares at a total cost of $1.0
billion.
2012 Guidance Affirmed
Backed by better-than-expected earnings, management raised its
fiscal 2012 earnings estimates to a range of $4.80 - $4.95 from the
earlier guidance range of $4.55 - $4.75. It also revised its
revenue estimates upwards, in the range of $109 billion - $110
billion from the previous revenue guidance range of $107.0 billion
- $108.0 billion. The company expects cash from operations in the
range of $6.2 billion - $6.5 billion.
Our Take
During the quarter the company was awarded the TRICARE
west contract to serve military service members. The contract gives
the largest U.S. health insurer (on the basis of revenue) access to
the military health care market, one of the areas that the company
has been looking to penetrate for a while now.
The company also announced its decision to purchase
Florida-based Preferred Care Partners and Medica HealthCare Plans,
to strengthen its Medicare Advantage business. It also completed
the acquisition of XLHealth Corporation to serve the emerging dual
eligible population.
Coming back to the quarter's results, UnitedHealth has been
performing very well with continuous revenue as well as membership
growth. We remain bullish about its prospects going forward, given
the proactive measures adopted by the company to align itself with
the changing market scenario, in the face of the Health Care
Reform.
The company is diversifying across businesses, products as well
as geographies and has taken several strategic initiatives in the
regard. A low reliance on debt, a solid capital position along with
healthy cash flow generation will allow the company to undertake
strategic growth initiatives.
UnitedHealth generally sets the tone for the performance of
other health insurers. Following the strong results of the health
insurer major, we expect favorable performance from its peers
Aetna Inc. (
AET
)
,
CIGNA Corp. (
CI
), WellPoint , and
Humana Inc. (
HUM
),
all of which are slated to release their first quarter earnings
soon.
AETNA INC-NEW (
AET
): Free Stock Analysis Report
CIGNA CORP (
CI
): Free Stock Analysis Report
HUMANA INC NEW (
HUM
): Free Stock Analysis Report
UNITEDHEALTH GP (
UNH
): Free Stock Analysis Report
WELLPOINT INC (
WLP
): Free Stock Analysis Report
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