UnitedHealth Group Inc.UNH reported third-quarter net operating earnings per share of $2.66, comfortably beating the Zacks Consensus Estimate of $2.57 and increasing 22.6% year over year.
Higher revenues, strength in both its segments, UnitedHealthcare and Optum, and membership growth led to the outperformance.
UnitedHealth has a tradition of guiding conservatively and then beating its own estimates to surprise investors. The company surpassed expectations in 25 out of 28 reported quarters and the quarter under review was no exception.
The stock gained 0.35% in the pre-market trading session and we expect continued outperformance to drive the stock higher.
Behind the Headlines
UnitedHealth posted net revenues of $50.3 billion, in line with the Zacks Consensus Estimate. Revenues were up 8.7% year over year. The company reported medical care ratio of 81.4%, up 110 basis points year over year.
Operating cost ratio of 14.7% was down 50 basis points year over year.
Strong Segment Performance
In the reported quarter, the company's health benefits segment
UnitedHealthcare reported revenues of $40.7 billion, up 9.6% year over year. Earnings from operations increased 14.3% year over year to $2.4 billion.
Revenues from Optum improved 8.4% year over year to $22.9 billion, reflecting strong contribution from subsegments OptumHealth and OptumInsight as well as OptumRx. Earnings from operations surged 15.7% year over year to $1.7 billion. Continued focus on accelerating growth as well as improving margins and productivity through enhanced integration and business alignment led to the overall improvement of this segment.
Membership Enrollment Surges
The company's medical enrollment grew to 49 million from 48.1 million in the year-ago quarter.
Capital Position Improves
Cash and short-term investments at quarter end were $19.8 billion, up 49% from the 2016-end level.
Debt-to-total capital ratio decreased to 38.2% at Sep 30, 2017 from 41.3% at Jun 30, 2017.
Cash flows from operations were $7.4 billion, up 117% year over year.
Encouraged by its strong earnings performance, the company raised its outlook for 2017 earnings. The company now expects 2017 GAAP net earnings to approach $9.45 per share (versus $9.20 to $9.35 per share earlier) and adjusted net earnings to near $10.00 per share (versus previous guidance of $9.75-$9.90).
UnitedHealth Group Incorporated Price, Consensus and EPS Surprise
The industry is lingering in uncertainty with the recent executive order by President Trump that proposes doing away with cost sharing reduction (CSR) payments that help low-income Americans to pay for health insurance. This will further disrupt the public exchange markets. But UnitedHealth is better off than others in the industry given its well-diversified business which shields it from strict regulations.
Other Stocks That Warrant a Look
UnitedHealth with a Zacks Rank #3 (Hold) has got this reporting cycle off to a flying start. While the other players in the space are lined up to report their financial results, below are three that are poised to beat on earnings as per our model.
Anthem Inc. ANTM has an Earnings ESP of +1.57% and a Zacks Rank #3. It is expected to report third-quarter earnings results on Oct 25.
Aetna Inc. AET has an Earnings ESP of +1.2% and a Zacks Rank #1 (Strong Buy). 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 stocks here .
Humana Inc. HUM is expected to report third-quarter earnings results on Nov 8. The company has an Earnings ESP of +1.4% and a Zacks Rank #3.
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