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UnitedHealth Beats on Q4 Earnings, Issues 2015 Guidance - Analyst Blog

Sapna Bagaria
Updated

UnitedHealth Group Inc. (UNH) reported fourth-quarter 2014 earnings of $1.55 per share, beating the Zacks Consensus Estimate of $1.50. Earnings grew 9.9% year over year.

 

The improvement came on the back of higher revenues. Strong results from Optum reflected a solid performance at its health services business while the UnitedHealthcare segment also contributed to growth. 

 

UnitedHealth Group Inc. - Quarterly EPS | FindTheBest

 

UnitedHealth posted revenues of $33.4 billion, up 7.4% year over year and marginally ahead of the Zacks Consensus Estimate of $33.0 billion. The year-over-year increase was an outcome of broad-based organic growth and business expansion in both health care benefits and health care services.

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The fourth quarter medical care ratio of 79.8% was down 140 basis points year over year due to the impact of ACA fees and improved premium yields, partially offset by an unfavorable business mix.

 

Total operating cost came in at $30.7 billion, up 7% year over year. The increase stemmed primarily from higher medical and operating costs. 

 

For full year 2014, UnitedHealth's operating income came in at $5.70 per share, beating the Zacks Consensus Estimate of $5.65 per share. The figure was also up 3.6% year over year. Full year earnings came in ahead of the company’s guidance range of $5.60–$5.65 per share. Total revenues of $130.5 billion were up 6.5% year over year and ahead of the Zacks Consensus Estimate of $130.2 billion. The company once again exceeded its own guidance of $130.0 billion. 

 

Segment Performance

 

During the reported quarter, UnitedHealth’s health benefits segment – UnitedHealthcare – witnessed revenue growth of 5.7% year over year to $30.4 billion. The increase came on the back of strong growth in membership in the public and senior sectors, partially offset by a decline in membership in commercial benefits. Earnings from operations of $1.7 billion declined 2.8% year over year.

 

Revenues from UnitedHealth’s other segment – the health services segment branded Optum – improved 23.4% to $12.9 billion on a year-over-year basis. Earnings from operations surged 53.5% year over year to $1.0 billion. Continued progress on Optum’s plan to accelerate growth and improve margins and productivity by strengthening integration and business alignment drove the improvement.

 

Membership Enrollment

 

UnitedHealth ended the quarter with 50.150 million members, compared with 50.395 million members in the year-ago quarter.

 

Capital Position

 

Fourth quarter cash flows from operations grew to $2.4 billion. The balance sheet position remained strong, with nearly $1 billion of cash available for corporate use and a debt-to-total capital ratio of 35% as of Dec 31, 2014. 

 

Share Repurchases and Dividend

 

UnitedHealth Group spent $4.0 billion in share buyback in 2014. It also paid $1.4 billion in shareholder dividends, up 29% year over year. The dividend was increased by 34% in the second quarter culminating in an annual rate of $1.50 per share.

 

2015 Guidance

 

UnitedHealth projected 2015 revenues in the range of $140.5 billion to $141.5 billion, earnings in the $6.00 to $6.25 per share band, and strong cash flows from operations in the $8.0 billion to $8.4 billion range.

 

Our Take

 

UnitedHealth’s 2014 results reflect consistent gains from strong growth in Medicaid and Medicare businesses. The company’s expanding business on public exchange markets and continued growth at Optum are the other catalysts. 

 

We favorably view UnitedHealth’s increased participation in the health insurance exchange, which will boost its membership. Strong balance sheet and a niche market position are some of the positives that UnitedHealth should benefit from going forward. 

 

UnitedHealth carries a Zacks Rank # 2 (Buy). 

 

We also expect a positive earnings surprise from Humana Inc. (HUM). The company has a Zacks Rank #2 and an Earnings ESP of +0.86%. The Zacks Consensus Estimate for the fourth quarter stands at $1.16 per share. 

 

Humana will announce fourth-quarter and full year 2014 results before the opening bell on Feb 4.

 

Anthem Inc. (ANTM) has a Zacks Rank #2 and an Earnings ESP of +1.74%. The Zacks Consensus Estimate for the fourth quarter stands at $1.72 per share. 

 

Anthem will announce fourth-quarter and full year 2014 results before the opening bell on Jan 28.

 

Centene Corp. (CNC) has a Zacks Rank #1 and an Earnings ESP of +1.77%. The Zacks Consensus Estimate for the fourth quarter stands at $1.70 per share. 

 

Centene will announce fourth-quarter and full year 2014 results before the opening bell on Feb 3.


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