What's in Store for UnitedHealth (UNH) This Earnings Season?

UnitedHealth Group Inc. UNH is scheduled to report fourth-quarter 2020 results on Jan 20, before the opening bell.

The Zacks Consensus Estimate for fourth-quarter earnings indicates a decline of 38.7% from the year-ago quarter’s reported figure while the same for revenues implies growth of 7.12% from the year-earlier period’s reported number.

Factors to Impact Q4 Results

In the to-be-reported quarter, revenues are likely to have grown with the increase in the strength of individuals served through Medicare Advantage and Medicaid, pricing trends, and organic and acquisition growth across the Optum business, primarily owing to expansion in pharmacy care services and care delivery. However, these upsides might have been partially offset by a lower number of individuals served through its commercial and Global benefits businesses, and certain customer assistance programs.

Within the company’s Healthcare segment, fourth-quarter operating results are likely to reflect a considerable reduction in the effect of delayed care moderation of the care deferral impact. Margins are expected to have been affected by its assistance measures, direct COVID-19 care costs and economic factors. The amount of people served through commercial products is likely to have declined, primarily due to employer actions. Medicaid membership growth is likely to have accelerated, benefiting from the continued easing of state re-determination requirements for Medicaid eligibility. Sales activity in Medicare Advantage is likely to have been more normal after seeing some slowdown in the second quarter due to the pandemic. MA sales improved in the third quarter, a trend that most likely continued in the to-be reported quarter as well. The Zacks Consensus Estimate for Healthcare's revenues is set at $50.8 billion, indicating a 5.3% rise from the prior-year quarter's reported figure.

In the company’s Optum business, the temporary postponement of care in the first nine months of last year meaningfully impacted its earnings. The segment’s fee-for-service care delivery business, such as traditional procedure work at its ambulatory surgery centers, was negatively impacted during this period while its risk-based care delivery business performance reflected lower demand for care. The Zacks Consensus Estimate for Optum's revenues is pegged at $34.4 billion, indicating a 15.4% rise from the prior-year quarter's reported figure.

Its OptumInsight and OptumRx volume-based businesses were also adversely impacted in the first nine months by a decline in care encounters as well as broader economic factors, inducing a ramp-down in managed services and a contracted prescription volume. As the health system continues to resume normalcy in seasonally-adjusted levels of care, the company is likely to see business activity approach more normal levels. The segment’s sub units, namely OptumInsight and OptumRx are therefore expected to have witnessed improved revenues in the quarter to be reported.Per the Zacks Consensus Estimate, revenue for OptumInsight and OptumRx  are pegged at $2.94 billion up 2.8% and 12%, respectively, from the prior-year quarter's reported figure.
 
The fourth-quarter results are likely to reflect higher costs from continued customer assistance measures, normalization in care patterns and rising acuity as a result of missed and deferred treatments in the earlier quarters due to COVID.  This, in turn, is likely to have dented margins.

For 2020, the company expects revenues to approximate $257 billion with net earnings to approach $15.90 per share and adjusted net earnings to be $16.75 per share. This in turn, suggests growth of 6.2% and 10.9%, respectively, for revenues and adjusted earnings each from the corresponding 2019 reported numbers.

Earnings Surprise Record

Unitedhealth has an impressive earnings history. Its bottom line outperformed the consensus mark in each of the preceding four quarters, the average being 15.22%, as shown below:

UnitedHealth Group Incorporated Price and EPS Surprise

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

Earnings Whispers

The proven Zacks model does not predict an earnings beat for UnitedHealth this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of a positive earnings surprise. But this is not the case here.  You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings ESP: UnitedHealth has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: UnitedHealth carries a Zacks Rank #3, currently.

Highlights of Q3 Earnings

The company’s September-quarter earnings of $3.51 per share beat the Zacks Consensus Estimate by 17.8% but the same declined 9.5% year over year due to higher healthcare utilization. Revenues of $65.1 billion topped the Zacks Consensus Estimate by 2.1% and were also rose 7.8% year over year, aided by broad-based revenue growth at Optum and UnitedHealthcare.
Stocks to Consider

Investors interested in the broader healthcare sector may consider the following stocks:

Abbott Laboratories ABT has an Earnings ESP of +1.39% and is Zacks #3 Ranked, presently.

Anthem Inc. ANTM has an Earnings ESP of +17.04% and a Zacks Rank #2 at present.

Gilead Sciences, Inc. GILD has an Earnings ESP of +4.76% and is currently a #3 Ranked player.

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UnitedHealth Group Incorporated (UNH) : Free Stock Analysis Report
 
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