UnitedHealth (UNH) Up 2.4% Since Earnings Report: Can It Continue?

It has been about a month since the last earnings report for UnitedHealth Group Incorporated UNH. Shares have added about 2.4% 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 the most recent earnings report in order to get a better handle on the important drivers.

UnitedHealth Beats on Q2 Earnings, Guides Up for 2017

UnitedHealth Group Inc. reported second-quarter net operating earnings per share of $2.46, comfortably beating the Zacks Consensus Estimate of $2.38 and increasing 25.5% year over year.

Higher revenues, strength in both its segments – UnitedHealthcare and Optum – and membership growth prompted the outperformance.

UnitedHealth has a tradition of guiding conservatively and then beating its own estimates to surprise investors. The company has surpassed expectations in 25 out of 28 reported quarters and the trend continued in the quarter under review.

The stock gained 1.8% in the pre-market trading session and we expect continued outperformance to drive the stock higher.

Behind the Headlines

UnitedHealth posted net revenue of $50.1 billion, in line with the Zacks Consensus Estimate. Revenues were up 7.7% year over year.

The company reported medical care ratio of 82.2%, up 20 basis points year over year.

Operating cost ratio of 14.6% was flat year over year.

Segment Performance

In the reported quarter, UnitedHealth’s health benefits segment – UnitedHealthcare – reported revenues of $40.8 billion, up 8.6% year over year. Earnings from operations increased 13.9% year over year to $2.2 billion.

Revenues from Optum improved 9.9% year over year to $22.7 billion, reflecting strong contribution from the subsegments OptumHealth and

OptumInsight as well as OptumRx. Earnings from operations surged 20.5% year over year to $1.5 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.

Membership Enrollment

The company’s medical enrollment grew to 49.5 million from 48 million in the year-ago quarter.

Capital Position

Cash and short-term investments at quarter end were $17.9 billion, up 35% from the 2016-end level.

Debt to total capital ratio decreased 650 basis points year over year to 41.3% at Jun 30, 2017.

Cash flows from operations were $2.2 billion, up 29% year over year.

Share Repurchase and Dividend Update

During the quarter, the company hiked its quarterly dividend by 20% to $0.75 per share.

The company repurchased 2.2 million shares during the quarter.

Guidance Update

Encouraged by its strong earnings performance in the first half of 2017, the company raised its outlook for 2017 GAAP net earnings to a range of $9.20 to $9.35 per share (previous guidance $9.10 to $9.30) and adjusted net earnings to a range of $9.75 to $9.90 per share (versus previous guidance of $9.65-$9.85).

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimate. There have been two lower revisions for the current quarter.

UnitedHealth Group Incorporated Price and Consensus

 

UnitedHealth Group Incorporated Price and Consensus | UnitedHealth Group Incorporated Quote

VGM Scores

At this time, the stock has an average Growth Score of C, however its Momentum is doing a bit better with a B. Following the exact same course, the stock was allocated also 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.

Based on our scores, the stock is equally suitable for value and momentum investors while growth investors may want to look elsewhere.

Outlook

While estimates have been moving downward, the magnitude of the revisions indicates an upward shift. Interestingly, the stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.

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