UnitedHealth's (UNH) Earnings in Q3 Beat on Higher Revenues

UnitedHealth Group Inc.’s UNH third-quarter 2020 earnings of $3.51 per share surpassed the Zacks Consensus Estimate by 17.8%. The bottom line was, however, down 9.5% year over year as healthcare utilization that was disrupted by the pandemic returned closer to normalcy.

UnitedHealth’s revenues of $65.1 billion beat the Zacks Consensus Estimate by 2.1% and were also up 7.8% year over year, aided by broad-based revenue growth at Optum and UnitedHealthcare.

Medical care ratio of 81.9% improved 50 basis points year over year, mainly owing to the temporary deferral of care amid the pandemic, partly offset by the company’s COVID-19 assistance measures.

The operating cost ratio of 15.6% increased 80 basis points due to the health insurance tax, COVID-19 response efforts and the business mix.

UnitedHealth Group Incorporated Price, Consensus and EPS Surprise

UnitedHealth Group Incorporated Price, Consensus and EPS Surprise

UnitedHealth Group Incorporated price-consensus-eps-surprise-chart | UnitedHealth Group Incorporated Quote

Strong Segmental Performances

In the reported quarter, the company’s health benefits segment UnitedHealthcare generated revenues worth $50.4 billion, up 4.8% year over year. Revenue growth was attributable to strong Medicare Advantage and dual special needs plans, partly offset by a decline in commercial enrollment.

Earnings from operations worth $2.1 billion were down 22.2% year over year due to the impact of the company’s consumer and customer-assistance measures and the COVID-19-related costs, partially offset by lower claim costs.

Revenues from another segment, Optum, rose 21.2% year over year to $34.9 billion, reflecting robust contributions from the sub-segments of OptumHealth (up 29%), OptumInsight (5.7%) and OptumRx (up 19.6%). Earnings from operations rose 9.5% year over year to $2.6 billion.

OptumHealth continued with its strong growth, driven by a further expansion of people served in value-based care arrangements. While

OptumInsight revenues were driven by growth in managed service, OptumRx gained from higher script volumes.

Decline in Membership Enrollment

The company served 48.19 million people in the quarter, down 1.19 million year over year due to lower member enrollment in the Commercial and International business.

During the first nine months of 2020, cash flow from operations of $16.07 billion surged 31.1% year over year.

Mixed Capital Position

Cash and short-term investments as of Sep 30, 2020 were $20.8 billion, up 46% from the level as of Dec 31, 2019.

Long-term debt of $39.9 billion at September-end was up 8.4% from the level at 2019 end.

2020 Guidance Raised

The company lifted its full-year earnings per share outlook. Net earnings of $15.65-$15.90 are up from the prior estimate of 15.45-$15.75 while adjusted net earnings of $16.50-$16.75 are up from the previous projection of $16.25-$16.55.

Zacks Rank and Upcoming Releases

UnitedHealth currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here

Here are some companies worth considering from the healthcare sector as our model shows that these have the right combination of elements to beat on earnings this reporting cycle:

Humana Inc. HUM has an Earnings ESP of +3.35% and a Zacks Rank #2, currently.

CareDx, Inc. CDNA has an Earnings ESP of +16.67% and a Zacks Rank of 2, presently.

Teladoc Health, Inc. TDOC has an Earnings ESP of +9.77% and a Zacks Rank of 3 at present.

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