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UnitedHealth Beats on Earnings & Revenues, Members Grow

Zacks Equity Research
Updated

UnitedHealth Group Inc. UNH reported fourth-quarter 2015 earnings of $1.40 per share, beating the Zacks Consensus Estimate of $1.37. Earnings declined 14.6% year over year.

The earnings beat came on the back of higher revenues. Strong results from the health services business Optum, membership increase and a lower share count due to share buyback also contributed to the outperformance.
    

UnitedHealth Group Inc. - Earnings Surprise | FindTheBest

UnitedHealth posted revenues of $43.6 billion, beating our estimate of $43.1 billion and growing 31% year over year. The increase was an outcome of business expansion in both health care benefits and health care services.

The company reported fourth-quarter medical care ratio of 81.4%, down 150 basis points year over year.

Total operating cost came in at $41.1 billion, 34% higher year over year. The increase stemmed primarily from higher medical and operating costs as well as an increase in the cost of goods sold.

Full-Year Highlights

For full-year 2015, the company’s earnings per share were $6.45, a penny ahead of the Zacks Consensus Estimate. The company reported above its own guidance of $6 per share issued in Dec 2015, when it trimmed the full-year earnings per share guidance from the range of $6.25 to $6.35, citing problems in its individual exchange business.

Full-year revenues of $157.1 billion zoomed past our estimate of $156.5 billion and improved 20% year over year.

Segment Performance

During the reported quarter, UnitedHealth’s health benefits segment – UnitedHealthcare – witnessed revenue growth of 7.9% year over year to $32.8 billion. Earnings from operations of $919 million were down 44% year over year.

Revenues from Optum improved 70% year over year to $21.9 billion in the quarter under review. Earnings from operations surged 50% year over year to $1.5 billion, mainly driven by a 96% increase in revenues from the subsegment OptumRx. Continued progress on Optum’s drive to accelerate growth, and improve margins and productivity by enhanced integration and business alignment led to the overall improvement.

Membership Enrollment

The company’s Medical membership increased to 46.4 million in the fourth quarter from 45 million in the prior-year quarter.

Capital Position

The company’s debt to total capital ratio was 49% at the end of the quarter, unchanged from the previous quarter. The increase in debt was due to the issuance of debt to fund the Catamaran acquisition that was closed during the third quarter. Fourth-quarter return on equity was 18%.

Guidance

The insurer projected 2016 earnings in the range of $7.60 to $7.80 per share, revenues of more than $180 billion and cash flows from operations of $9.5 billion to $10 billion.
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Our Take     

The company’s results reflect consistent gains from strong growth in its Optum segment. Going forward, higher membership, a strong balance sheet and a niche market position are some of the other positives that UnitedHealth should benefit from.
 
Zacks Rank and Other Stocks

Currently, UnitedHealth sports a Zacks Rank #1 (Strong Buy).

While UnitedHealth is the first among the health insurers to report earnings, here are some others from the space that we also expect to post a positive earnings surprise this season:

Centene Corp. CNC has an Earnings ESP of +1.21% and carries a Zacks Rank #1. The company is expected to report fourth-quarter earnings results on Feb 9.

Assurant Inc. AIZ has an Earnings ESP of +0.65% and carries a Zacks Rank #3. The company is expected to report fourth-quarter earnings results on Feb 9.

Magellan Health, Inc. MGLN has an Earnings ESP of +1.43% and carries a Zacks Rank #1. The company is expected to report fourth-quarter earnings results on Feb 25.

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