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UnitedHealth Beats on Q3 Earnings, Revenues; Guides Same

UnitedHealth Group Inc.UNH reported third-quarter 2015 earnings of $1.65 per share, beating the Zacks Consensus Estimate of $1.63. Earnings grew 1.2% year over year.

The improvement came on the back of higher revenues. Strong results from Optum reflected solid performance by its health services business while the UnitedHealthcare segment also contributed to growth.

UnitedHealth also posted revenues ahead of expectations. Reported revenue was $41.5 billion, ahead of our consensus estimate of $39.9 billion and up 26.5% year over year. The increase was an outcome of business expansion in both health care benefits and health care services.

The company reported third-quarter medical care ratio of 80.6% up 90 basis points year over year.

Total operating cost came in at $38.5 billion, 28.8% higher year over year. The increase stemmed primarily from higher medical, operating costs and cost of goods sold.

Segment Performance

During the reported quarter, UnitedHealth's health benefits segment - UnitedHealthcare - witnessed revenue growth of 9% year over year to $32.8 billion. Earnings from operations of $1.9 billion were down 5% year over year.

Revenues from the company's other segment - the health services segment branded Optum - improved a whopping 61% to $19.3 billion on a year-over-year basis. Earnings from operations surged 32% year over year to $1.14 billion, mainly driven by an 80% increase in revenues from its subsegment OptumRx. Continued progress on Optum's plan to accelerate growth, and improve margins and productivity by strengthening integration and business alignment drove improvement overall.

Membership Enrollment

The company's Medical membership increased to 46.1 million, up from 45.9 million in the prior-year quarter.

Capital Position

The company's debt to total capital ratio was 49% at the end of the quarter, higher than 35% at the end of second quarter. The increase was due to the issuance of debt to fund the Catamaran acquisition that was closed during the reported quarter. Third-quarter return on equity was 19.3%.

Share Repurchases and Dividend

UnitedHealth Group spent $177 million on share buyback in the reported quarter.

Reiterated Guidance for 2015

The insurer continues to project 2015 net earnings in a range of $6.25 to $6.35 per share, and cash flows from operations of $8.4 billion to $8.6 billion.

Our Take

UnitedHealth's results reflect consistent gains from strong growth in its Optum segment. Expanding business on public exchange markets and continued growth at Optum are the other catalysts.

We favorably view UnitedHealth's increased participation in the health insurance exchange, which will boost its membership. A niche market position is another positive that UnitedHealth should benefit from going forward.

Zacks Rank and Other Stocks

UnitedHealth carries a Zacks Rank #2 (Buy).

We also expect positive third-quarter earnings surprises from Anthem Inc. ANTM , Molina Healthcare, Inc. MOH and Aetna Inc. AET . Among these health insurers, Anthem will report on Oct 28 while Molina and Aetna are slated to report on Oct 29.

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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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