UnitedHealth Group Inc. 's UNH third-quarter 2018 earnings of $3.41 per share surpassed the Zacks Consensus Estimate by 3.33%. The same was up 28% year over year.
Higher revenues, strength in both segments - UnitedHealthcare and Optum - plus membership growth led to this outperformance.
UnitedHealth has a tradition of guiding conservatively and then surpassing its own estimates to surprise investors.
UnitedHealth Group Incorporated Price, Consensus and EPS Surprise
UnitedHealth Group Incorporated Price, Consensus and EPS Surprise | UnitedHealth Group Incorporated Quote
Strong Operating Performance
UnitedHealth posted revenues of $56.6 billion, which beat the Zacks Consensus Estimate by 0.9%. The same was up 12% year over year, led by strong revenue growth rates across both UnitedHealthcare and Optum segments.
Consolidated medical care ratio of 81% shrunk 40 basis points (bps) year over year.
The operating cost ratio of 15.0% increased 30 basis points year over year, as business mix changes and operating efficiencies were more than offset by the return of the health insurance tax.
Operating margin of 8.1% improved 60 basis points year over year.
Strong Performance Across Segments
In the reported quarter, the company's health benefits segment, UnitedHealthcare, generated revenues of $45.9 billion, up 12.8% year over year. Revenue growth was driven by higher enrollment and increase in pricing. Earnings from operations grew 8.3% year over year to $2.6 billion.
Revenues from Optum improved 11% year over year to $25.4 billion, reflecting strong contributions from the sub-segments - OptumHealth, OptumInsight and OptumRx. Earnings from operations jumped 19.7% year over year to $2 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 48.97 million people in the quarter, up 6% year over year, led by growth in members served in the Public and Senior, and International segments, partially offset by lower Commercial membership.
Capital Position Update
Cash and short-term investments at quarter-end were $13.8 billion, down 10.6% from the 2017-end level.
Debt-to-total capital ratio was 38.9% on Sep 30, 2018, having contracted two percentage points sequentially.
Cash flow from operations declined to $13.32 billion in the first nine months of 2018, compared with 16.2 billion generated in the comparable prior period year.
2018 Guidance Update
UnitedHealth revised its 2018 financial outlook, buoyed by solid third-quarter results. It now expects 2018 net earnings to be near to $12.10 from its previous expectation range of $11.80 to $12.05. Adjusted net earnings have been raised to reach $12.80 from the previous target range of $12.50 and $12.75.
Zacks Rank and Other Stocks That Warrant a Look
UnitedHealth, with a Zacks Rank #2 (Buy), has got this reporting cycle off to a flying start. While the other players in this space are lined up to report financial results, below are three stocks, poised to beat on earnings per the proven Zacks model.
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .
Molina Healthcare, Inc. MOH has an Earnings ESP of +4.39% and a Zacks Rank #3 (Hold). The company is expected to report third-quarter earnings results on Oct 31. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Aetna Inc. AET has an Earnings ESP of +0.53% and a Zacks Rank #3. The company is expected to report third-quarter earnings results on Oct 30.
Tenet Healthcare Corporation THC has an Earnings ESP of +7.6% and a Zacks Rank #3. The company is expected to report third-quarter earnings results on Nov 5.
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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 reportAetna Inc. (AET): Free Stock Analysis ReportMolina Healthcare, Inc (MOH): Free Stock Analysis ReportUnitedHealth Group Incorporated (UNH): Free Stock Analysis ReportTenet Healthcare Corporation (THC): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment Research