Ride On UnitedHealth Q3 Strength with These ETFs

The U.S. health insurer UnitedHealth Group UNH reported upbeat third-quarter results. It topped our estimates on the bottom line and raised its full-year outlook.

Net operating earnings per share of $2.66, comfortably beat the Zacks Consensus Estimate of $2.57 and were 22.6% higher year over year. Higher revenues, strength in both its segments, UnitedHealthcare and Optum, and membership growth led to the outperformance.

The company 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.

Buoyed by its strong earnings performance, the company raised its outlook for 2017 earnings. The company now expects 2017 GAAP net earnings to touch $9.45 per share (versus $9.20 to $9.35 per share guided earlier) and adjusted net earnings to near $10.00 per share (versus previous guidance of $9.75-$9.90).

Market Impact

The market has welcomed UNH’s earnings beat and its strong outlook. Shares of UNH jumped as much as 5.5% following its earnings announcement on about 3.28 times elevated volumes. After all, the stock has a VGM (Value, Growth, Momentum) Score of B and its Zacks Industry Rank is in the top 28%.

Since UnitedHealth is the first insurer to report earnings and a bellwether, the result has acted as a cornerstone for the broad health insurance sector with stocks of other players in the space in green at the close on the day. Some of these players include Aetna AET – up 2.9%, Anthem ANTM - up 1.9%, Cigna CI – up 1.2% and Humana HUM – up 1.4%.

Given UnitedHealth’s strength to lift the health insurer corner of the broad health care space and the solid run up in its share price, some ETFs heavily invested in UnitedHealth could be worth watching for investors seeking to ride out the recent surge. Below we highlight a few ETFs.

iShares U.S. Healthcare Providers ETF IHF

This ETF has exposure to companies that provide health insurance, diagnostics and specialized treatment. In total, the fund holds 45 securities in its basket with United Health at the top spot that accounts for the largest 14.19% share. The other in-focus firms –AET, CI, ANTH, and HUM – are also among the top 10 holdings making up for a combined 25% of assets (read: Top-Ranked Health Care ETFs to Buy Now).

The fund has amassed $539.6 million in its asset base while volume is moderate at about 64,000 shares per day on average. It charges 44 bps in annual fees and expenses and added about 2% following the UNH earnings release. The product has a Zacks ETF Rank #2 (Buy).

Health Care Select Sector SPDR Fund XLV

The 62-stock fund gives exposure to the broader healthcare sector. UnitedHealth takes the third spot with about 5.97% exposure. The $17.4-billion fund charges 14 bps in fees and gained more than 1.3% on Oct 17. XLV has a Zacks Rank #2 (see all Health Care ETFs here).

SPDR Dow Jones Industrial Average ETF DIA

This fund follows the Dow Jones Industrial Average, providing exposure to 30 blue-chip U.S. stocks. The in-focus UnitedHealth occupies the fourth position in the basket with 5.79% share. The $19.1-billion ETF is well spread out across a number of sectors with industrials, information technology, financials, consumer discretionary and health care taking the top five spots with a double-digit exposure each. It charges 17 bps in annual fees from investors and has a Zacks ETF Rank #3 (read: Will Dow ETFs Continue to Shine in Q3 Earnings?).

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SPDR-DJ IND AVG (DIA): ETF Research Reports
 
SPDR-HLTH CR (XLV): ETF Research Reports
 
ISHARS-US H C P (IHF): ETF Research Reports
 
Cigna Corporation (CI) : Free Stock Analysis Report
 
Aetna Inc. (AET) : Free Stock Analysis Report
 
Humana Inc. (HUM) : Free Stock Analysis Report
 
UnitedHealth Group Incorporated (UNH) : Free Stock Analysis Report
 
Anthem, Inc. (ANTM) : Free Stock Analysis Report
 
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