UnitedHealth (UNH) Beats on Q3 Earnings, Ups 2022 EPS View

UnitedHealth Group Incorporated UNH reported third-quarter 2022 adjusted earnings of $5.79 per share, which beat the Zacks Consensus Estimate by 6.2%. The bottom line improved from $4.52 per share a year ago.

The company’s quarterly performance was driven by sustained membership growth in its UnitedHealthcare business. Strong expansion in value-based arrangements at the Optum Health segment contributed to the upside. However, the upside was partly offset by elevated operating costs.

Revenues of UNH were $80.9 billion in the third quarter, which climbed from $72.3 billion a year ago, on the back of sound contributions made by UnitedHealthcare and Optum segments. The top line outpaced the consensus mark of $80.7 billion.

UnitedHealth Group Incorporated Price, Consensus and EPS Surprise

UnitedHealth Group Incorporated Price, Consensus and EPS Surprise

UnitedHealth Group Incorporated price-consensus-eps-surprise-chart | UnitedHealth Group Incorporated Quote

Q3 Business Performance

The medical care ratio of UnitedHealth Group improved 140 basis points year over year to 81.6% during the quarter under review.

The operating cost ratio of 14.4% decreased from 14.8% due to consistent productivity gains. Nevertheless, it was partly offset by the business mix and continued investments undertaken by UNH to pursue future growth opportunities.

Total operating costs amounted to $73.4 billion in the third quarter, which increased 10.2% year over year due to higher medical costs, operating expenses, cost of products sold and depreciation and amortization.

Segmental Performances

The health benefits segment of UnitedHealth Group, UnitedHealthcare, reported revenues of $62 billion, which improved from $55.9 billion a year ago.

Earnings from operations climbed 40.7% year over year to $3.8 billion in the third quarter. The operating margin was at 6.1%. The improvement can be attributed to strong membership growth and consistent management of medical and operating costs.

Revenues from another segment, Optum, totaled $46.6 billion, up 17.1% year over year on the back of significant growth across each of the segment’s businesses. Optum Health, which has been gaining from a greater number of people served under value-based care arrangements and consistent strengthening of care services, contributed the most to Optum’s top-line growth.

Earnings from operations grew 19.4% year over year to $3.7 billion in the quarter under review. The operating margin was at 7.9%.

Apart from OptumHealth, the other sub-segments of Optum also exhibited impressive performances in the third quarter. While Optum Insight revenues gained from the growing payer and provider services, the performance of the Optum Rx sub-segment benefited from the broadening of pharmacy care services offerings and the effective catering of new clients.

Uptick in Membership Enrollment

The UnitedHealthcare segment catered to 51,325 thousand people as of Sep 30, 2022, up 910 thousand year over year, thanks to the community-based and senior offerings of the unit.

Financial Position (as of Sep 30, 2022)

UnitedHealth Group exited the third quarter with cash and short-term investments of around $42.5 billion, which increased from the 2021-end level of $23.9 billion. Total assets of $243.1 billion climbed from the figure of $212.2 billion at the 2021-end.

Long-term debt, less current maturities of $45.4 billion, escalated from the 2021-end figure of $42.4 billion. The short-term borrowings and current portion of long-term debt were at $3.2 billion.

Return on equity came in at 28.5% in the third quarter, which improved from 27.9% in the second quarter.

Increase in Cash Flows

During the nine months that ended Sep 30, 2022, UnitedHealth Group generated cash flows from operations of $30.7 billion, which increased from the prior-year comparable period’s $19.1 billion. Adjusted cash flows from operations for the third quarter were $8.8 billion.

Share Repurchase and Dividend Update

In the first nine months of the year, UnitedHealth rewarded its shareholders with share repurchases of $6 billion and dividends of $4.5 billion.

2022 Guidance Upped

Backed by the performance exhibited by UNH in the first three quarters of 2022 and growth projections, UnitedHealth again raised its earnings outlook for the year.

Net earnings are now expected within the range of $20.85-$21.05 per share, higher than the prior guidance of $20.45-$20.95, and the 2021 figure of $18.08.

Meanwhile, adjusted net earnings per share are anticipated to be in the $21.85-$22.05 band, up from the previous projection of $21.40-$21.90.

Zacks Rank & Key Picks

UnitedHealth currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the medical space are Centene Corporation CNC, Humana Inc. HUM and Molina Healthcare, Inc. MOH, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Centene’s 2022 bottom line indicates a 10.7% year-over-year increase. CNC’s earnings beat estimates in three of the last four quarters and missed once, the average surprise being 3%.

The consensus mark for Humana’s 2022 earnings per share signals a 21.2% year-over-year rise. HUM’s earnings beat estimates in each of the last four quarters, the average surprise being 9.1%.

The Zacks Consensus Estimate for Molina Healthcare’s 2022 bottom line indicates a 30.4% year-over-year increase. MOH’s earnings beat estimates in each of the last four quarters, the average surprise being 3.2%.

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