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Can UnitedHealth (UNH) Surprise on Q1 Earnings? - Analyst Blog

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Health insurer UnitedHealth Group Inc. UNH is scheduled to report first-quarter 2015 results before the opening bell on Apr 16. The company kicks off the managed care sector earnings season since it is the first to report earnings every quarter.

In the last quarter, this health insurer delivered a 3.3% positive earnings surprise. The average beat for the trailing four quarters is 6.1%.

Will UnitedHealth deliver a positive earnings surprise this quarter as well? Let's see what factors might have influenced the earnings report this time around.

Q1 Flashback

Drivers of earnings at UnitedHealth are several, courtesy of its highly diversified business portfolio. More specifically, we see earnings build up in the quarter from its Medicaid and International segments in United Healthcare and continued top-line growth and margin expansion within Optum (the company's health service segment).

We also expect margins to benefit from medical utilization that was likely restrained by continued medical management and consumer/physician engagement efforts.

Additionally, UnitedHealth's use of capital for share buyback will provide an extra support to earnings.

However, earnings can see a drag from its commercial and individual business which remains soft. We also expect earnings to suffer from higher expense ratio attributed to Affordable Care Act costs and health care services growth.

The company is expected to witness increased medical cost related to hepatitis C in each of its businesses in 2015 which will hurt its bottom line.

Earnings Whispers

Our proven model does not conclusively show that UnitedHealth is likely to beat the Zacks Consensus Estimate in the first quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least 2 (Buy) or 3 (Hold) for this to happen. But this is not the case here as elaborated below.

Zacks ESP: UnitedHealth's Most Accurate estimate is pegged at $1.32 per share, which is a penny lower than the Zacks Consensus Estimate of $1.33. The Earnings ESP is thus -0.75%.

Zacks Rank: UnitedHealth has a Zacks Rank #3 (Hold). Though Zacks Rank #1, 2 or 3 increases the predictive power of ESP, the company's ESP of -0.75% makes surprise prediction difficult.

Stocks to Consider

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

eHealth, Inc. EHTH has an Earnings ESP of +25.0% and carries a Zacks Rank #3.

Humana Inc. HUM has an Earnings ESP of +0.79% and carries a Zacks Rank #2.

Cigna Corp. CI has an Earnings ESP of +0.54% and carries a Zacks Rank #2.

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UNITEDHEALTH GP (UNH): Free Stock Analysis Report

HUMANA INC NEW (HUM): Free Stock Analysis Report

CIGNA CORP (CI): Free Stock Analysis Report

EHEALTH INC (EHTH): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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