It has been about a month since the last earnings report for UnitedHealth Group (UNH). Shares have added about 6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is UnitedHealth due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
UnitedHealth Q3 Earnings Beat on Domestic Commercial Business
UnitedHealth reported third-quarter 2024 adjusted earnings per share (EPS) of $7.15, which surpassed the Zacks Consensus Estimate by 1.9%. The bottom line advanced 9% year over year.
Revenues rose 9.1% year over year to $100.8 billion, attributable to a higher number of people served through the UnitedHealthcare and Optum businesses. The top line beat the consensus mark by 1.3%.
The quarterly performance was aided by domestic commercial membership growth, value-based care expansion in Optum Health and new client wins at Optum Rx. However, the upside was partly offset by elevated medical costs and a decline in membership across global commercial and Medicaid businesses.
Q3 Business Performance of UnitedHealth
UnitedHealth’s medical care ratio (MCR) was 85.2%, which deteriorated 290 basis points (bps) year over year. The metric came higher than the Zacks Consensus Estimate of 84.3% and our estimate of 84.4%. MCR witnessed an increase due to the previously noted reductions in Medicare funding from CMS, the impact of medical reserve development and changes in the business and member mix.
Total operating costs of $92.1 billion escalated nearly 10% year over year due to higher medical costs and cost of products sold. The figure came higher than our estimate of $90.5 billion.
Yet, the operating cost ratio improved 180 bps year over year to 13.2% in the third quarter.
UnitedHealth’s operating earnings grew 2.4% year over year to $8.7 billion. The metric included a $0.3 billion impact due to unfavorable effects from a cyberattack. However, the net margin deteriorated 30 bps year over year to 6% .
Performance of UnitedHealth’s Business Platforms in Details
Revenues of the health benefits business of UnitedHealth, UnitedHealthcare, advanced 7.2% year over year to $74.9 billion on the back of an increase in domestic membership growth. The metric outpaced the Zacks Consensus Estimate of $73.6 billion and our estimate of $73.4 billion.
Earnings from operations amounted to $4.2 billion in the third quarter, down 8.7% year over year. Operating margin deteriorated 100 bps year over year to 5.6%.
Revenues in the Optum business line were $63.9 billion, which rose 12.7% year over year on the back of strong contributions from Optum Health and Optum Rx sub-units. However, the figure fell short of the consensus mark of $64.4 billion.
Optum Health benefited on the back of an expanding customer base under value-based care arrangements and the expansion of care types and services provided. On the other hand, Optum Rx gained from new client additions, retention of existing clients and growth in its comprehensive pharmacy services offerings. Adjusted scripts rose nearly 8% year over year .
Optum’s earnings from operations climbed 15.4% year over year to $4.5 billion. Operating margin of 7% improved 10 bps year over year.
Decrease in Membership of UnitedHealth’s Businesses
The UnitedHealthcare business catered to 50.7 million people as of Sept. 30, 2024, which fell 4% year over year due to global commercial and Medicaid membership declines. Nevertheless, strength in domestic commercial and Medicare Advantage businesses provided some respite. The figure beat the Zacks Consensus Estimate of 50.23 million and our estimate of 50.25 million.
UnitedHealth’s Financial Position (As of Sept. 30, 2024)
UnitedHealth exited the third quarter with cash and short-term investments of $37.1 billion, which climbed 25.3% from the 2023-end level.
Total assets of $299.3 billion increased 9.3% from the figure at 2023-end.
Long-term debt, less of current maturities, amounted to $74.1 billion, up 27.2% from the figure as of Dec. 31, 2023. Short-term borrowings and the current portion of long-term debt were $3.9 billion.
Total equity of nearly $100 billion advanced 5.8% from the 2023-end level.
Decline in Cash Flows of UnitedHealth
UnitedHealth generated operating cash flows of $21.8 billion in the first nine months of 2024, which plunged 36.3% from the prior-year period.
UnitedHealth Capital Deployment Update
UnitedHealthrewarded more than $9.6 billion to its shareholders in the form of share repurchases and dividends in the first nine months of 2024.
2024 Outlook of UnitedHealth
New Update
Management projects adjusted net EPS between $27.50 and $27.75 for 2024 compared with the earlier stated $27.50-$28.00. The midpoint of the revised outlook implies 10% growth from the 2023 reported figure.
Net EPS is forecast to be $15.50-$15.75, down from the earlier mentioned $15.95-$16.40. The guidance accounts for the disposal of South American operations in the first half of 2024 and the impact of the Change Healthcare cyberattack.
The company expects to incur direct response costs of $2.15 per share this year.
It expects a per-share business disruption impact of 75 cents.
Previous View
Revenues were earlier estimated between $400 billion and $403 billion in 2024. Operating cash flows were projected to be $30-$31 billion.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
VGM Scores
Currently, UnitedHealth has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, UnitedHealth has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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UnitedHealth Group Incorporated (UNH) : Free Stock Analysis Report
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