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Will Business Mix Foil UnitedHealth (UNH) Q3 Earnings Beat?

Health insurer UnitedHealth Group Inc.UNH is scheduled to report third-quarter 2015 results before the opening bell on Oct 15. The company is considered the bellwether for the managed care sector since it is the first to report earnings every quarter.

In the last quarter, this health insurer delivered a 4.5% positive earnings surprise. The average beat for the trailing four quarters is 6.03%. Will UnitedHealth deliver a positive earnings surprise this quarter as well?

Q3 Flashback

UnitedHealth's earnings are driven by a number of sources courtesy of its highly diversified business portfolio. More specifically, we expect earnings to have built up on the strength of its Optum Rx segment, which closed the acquisition of Catamaran in the quarter under discussion. The acquisition will however be neutral to the bottom line since the impact of earnings will be fully offset by interest, amortization and integration costs. But the acquisition will add approximately $10 billion to revenues in 2015, and a part of this revenue will be visible in the third quarter itself.

Medicaid, Medicare and International segments of the company will continue to drive top-line and margin growth.

However, UnitedHealth's earnings can see a drag from its commercial and individual business which faces risk due to the change in business mix. We also expect earnings to suffer from a higher expense ratio attributed to Affordable Care Act costs and health care services growth.

We also apprehend that the bottom line will be affected by reduced share buyback activity as the company used up the fund for the Catamaran acquisition.

Earnings Whispers

Our proven model does not conclusively show that UnitedHealth is likely to beat the Zacks Consensus Estimate in the third quarter. That is because a stock needs to have both a positive Earnings ESP 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 $1.63 per share, which is in line with the Zacks Consensus Estimate. The Earnings ESP is thus 0.00%.

Zacks Rank: UnitedHealth has a Zacks Rank #2 (Buy). Though this increases the predictive power of ESP, the company's ESP of 0.00% makes our 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:

Anthem Inc. ANTM has an Earnings ESP of +2.58% and carries a Zacks Rank #3. The company is slated to report third-quarter earnings on Oct 28.

Molina Healthcare, Inc. MOH has an Earnings ESP of +4.29% and carries a Zacks Rank #3. The company is expected to report third-quarter earnings on Oct 29.

Aetna Inc. AET has an Earnings ESP of +0.56% and carries a Zacks Rank #2. The company is expected to report third-quarter earnings 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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