UnitedHealth's (UNH) Q2 Earnings Beat, 2018 Guidance Up

UnitedHealth Group Inc.’s UNH second-quarter 2018 earnings of $3.14 per share surpassed the Zacks Consensus Estimate of $3.03. Also, the reported figure was up 28% year over year.

Higher revenues, strength in both segments — UnitedHealthcare and Optum — plus membership growth led to this outperformance.

UnitedHealth has a tradition of guiding conservatively and then surpassing its own estimates to surprise investors.

UnitedHealth Group Incorporated Price, Consensus and EPS Surprise

UnitedHealth Group Incorporated Price, Consensus and EPS Surprise | UnitedHealth Group Incorporated Quote

Behind the Headlines

UnitedHealth posted revenues of $56.1 billion, which came in line with the Zacks Consensus Estimate. In addition, the figure improved 12% year over year.

Consolidated medical care ratio of 81.9% shrunk 30 basis points (bps) year over year.

Total operating cost of $51.9 billion was up 12% year over year due to high medical and operating cost, and rise in the cost of goods sold.

The second-quarter 2018 income tax rate of 22% decreased from 31.5% reported in the year-ago quarter.

Strong Performance Across Segments

In the reported quarter, the company’s health benefits segment, UnitedHealthcare, generated revenues of $45.8 billion, up 12.4% year over year. Earnings from operations grew 9.1% year over year to $2.4 billion.

Revenues from Optum improved 9.1% year over year to $24.7 billion, reflecting strong contributions from the sub-segments  — OptumHealth, OptumInsight and OptumRx. Earnings from operations jumped 21.5% year over year to $1.8 billion. A steady focus on accelerating growth, as well as improving margins and productivity through enhanced integration and business alignment, led to the segment’s overall improvement.

Membership Enrollment Increases

The company served 48.8 million people in the quarter, up 4.8% year over year, led by growth in members served in the Public and Senior, and International segments, partially offset by a lower Commercial membership.

Capital Position Improves

Cash and short-term investments at the quarter-end were $21.9 billion, up 41.3% from the 2017-end level.

Debt-to-total capital ratio was 40.8% on Jun 30, 2018, having contracted 80 bps sequentially.

Cash flow from operations was $4 billion, up 81.8% year over year.
UnitedHealth Group spent $500 billion on share buyback and paid $866 million in dividends. The company increased its annual dividend payment by 20% to $3.60 per share, last month.  

2018 Guidance Update

UnitedHealth revised its 2018 financial outlook, buoyed by the solid second-quarter results. It now expects 2018 net earnings of $11.80 to $12.05, up from the earlier projection of $11.70 to $11.95 per share. Adjusted net earnings have been raised to $12.50 to $12.75 from $12.40 to $12.65 per share guided earlier. Cash flows from operations are estimated to approach $15.5 billion.

Zacks Rank and Other Stocks That Warrant a Look

UnitedHealth, with a Zacks Rank #2 (Buy), has got this reporting cycle off to a flying start. While the other players in this space are lined up to report financial results, below are three stocks, poised to beat on earnings per the proven Zacks model. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Molina Healthcare, Inc MOH is set to report second-quarter earnings on Jul 31. The company has an Earnings ESP of +3.9% and a Zacks Rank #3 (Hold).

Anthem, Inc. ANTM has an Earnings ESP of +0.48% and a Zacks Rank of 3. The company is slated to release second-quarter earnings numbers on Jul 25.

WellCare Health Plans, Inc. WCG has an Earnings ESP of +1.09% and a Zacks Rank of 2. The company is scheduled to announce second-quarter financial figures on Jul 31.

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