It has been about a month since the last earnings report for UnitedHealth Group IncorporatedUNH . Shares have added about 4.2% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
UnitedHealth 's (UNH) Q4 Earnings Beat, Affirms Guidance
UnitedHealth Group Inc. reported fourth-quarter 2016 earnings of $2.11 per share, beating the Zacks Consensus Estimate of $2.07. Earnings improved 50.7% year over year.
UnitedHealth has a tradition of guiding conservatively and then beating its own estimates to surprise investors. Since 2009, the company has surpassed expectations in 25 out of 28 reported quarters and the trend continued in the reported quarter. The stock gained 1.82% in the pre-market trading session and we expect continued outperformance to drive the stock higher.
The earnings beat came on the back of higher revenues. Strong results from the health services business Optum and increased membership contributed to the outperformance.
For full-year 2016, operating earnings were $13.3 billion, up 20.5% year over year, or $8.05 per share, up 24.8% year over year. Earnings easily surpassed the Zacks Consensus Estimate of $8.01 and were above the company's own guidance of 'approximately $8'.
Behind the Headlines
UnitedHealth posted revenues of $47.5 billion compared with the Zacks Consensus Estimate of $46.8 billion. Also, revenues grew 9% year over year. The increase was an outcome of business expansion in both health care benefits and health care services.
The company reported medical care ratio of 80.8%, down 190 basis points year over year, attributable to improved core business performance and reduced individual market pressure.
Total operating cost came in at $44 billion, 6.9% higher year over year. The increase stemmed primarily from higher medical and operating costs.
Operating cost ratio of 15.7% increased 60 basis points year over year due to higher levels of investment.
In the reported quarter, UnitedHealth's health benefits segment - UnitedHealthcare - reported revenues of $37.9 billion, up 15.5% year over year. Earnings from operations increased 79% year over year to $1.7 billion.
Revenues from Optum improved 1.4% year over year to $22.2 billion, reflecting strong contribution from the subsegments - OptumHealth and OptumInsight - offset by a decline in OptumRx revenues. Earnings from operations surged 20% year over year to $1.8 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.
The company's total medical membership at the end of the reported quarter was 48.59 million, up from 46.4 million in the year-ago quarter.
Cash and short-term investments at quarter end were $13.3 billion, up 2.8% from the 2015-end level.
Debt-to-total-capital ratio was 46.2% at the end of the fourth quarter, down 250 basis points year over year.
Fourth-quarter adjusted cash flows were $2.4 billion.
The company repurchased 1.2 million shares in the quarter.
UnitedHealth affirmed its 2017 guidance provided last month. It estimates revenues of $197 billion to $199 billion, net earnings of $8.75 to $9.05 per share, adjusted net earnings of $9.30 to $9.60 per share, and cash flows from operations of $11.5 billion to $12 billion.
How Have Estimates Been Moving Since Then?
In the past month , investors have witnessed an upward trend for fresh estimates. There have been three upward revisions for the current quarter.
UnitedHealth Group Incorporated Price and Consensus
At this time, UnitedHealth's stock has a nice score of 'B' on both growth and momentum front. Charting a somewhat similar path, the stock was allocated a grade of 'A' on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregte VGM score of 'A'. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is more suitable for value investors than those looking for growth and momentum.
While estimates have been trending upward for the stock, the magnitude of these revisions looks promising. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.