Why Is UnitedHealth Group (UNH) Up 2.03% Since Its Last Earnings Report?

A month has gone by since the last earnings report for UnitedHealth Group Incorporated UNH. Shares have added about 2% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is UNH 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 Q2 Earnings Beat Estimates

 

UnitedHealth Group Inc.’s second-quarter 2018 earnings of $3.14 per share surpassed the Zacks Consensus Estimate of $3.03. Also, the reported figure was up 28% year over year.

 

Higher revenues, strength in both segments — UnitedHealthcare and Optum — plus membership growth led to this outperformance.

 

Behind the Headlines

 

UnitedHealth posted revenues of $56.1 billion, which came in line with the Zacks Consensus Estimate. In addition, the figure improved 12% year over year.

 

Consolidated medical care ratio of 81.9% shrunk 30 basis points (bps) year over year.

 

Total operating cost of $51.9 billion was up 12% year over year due to high medical and operating cost, and rise in the cost of goods sold.

 

The second-quarter 2018 income tax rate of 22% decreased from 31.5% reported in the year-ago quarter.

 

Strong Performance Across Segments

 

In the reported quarter, the company’s health benefits segment, UnitedHealthcare, generated revenues of $45.8 billion, up 12.4% year over year. Earnings from operations grew 9.1% year over year to $2.4 billion.

 

Revenues from Optum improved 9.1% year over year to $24.7 billion, reflecting strong contributions from the sub-segments  — OptumHealth, OptumInsight and OptumRx. Earnings from operations jumped 21.5% year over year to $1.8 billion. A steady focus on accelerating growth, as well as improving margins and productivity through enhanced integration and business alignment, led to the segment’s overall improvement.

 

Membership Enrollment Increases

 

The company served 48.8 million people in the quarter, up 4.8% year over year, led by growth in members served in the Public and Senior, and International segments, partially offset by a lower Commercial membership.

 

Capital Position Improves

 

Cash and short-term investments at the quarter-end were $21.9 billion, up 41.3% from the 2017-end level.

 

Debt-to-total capital ratio was 40.8% on Jun 30, 2018, having contracted 80 bps sequentially.

 

Cash flow from operations was $4 billion, up 81.8% year over year.

 

UnitedHealth Group spent $500 billion on share buyback and paid $866 million in dividends. The company increased its annual dividend payment by 20% to $3.60 per share, last month.  

 

2018 Guidance Update

 

UnitedHealth revised its 2018 financial outlook, buoyed by the solid second-quarter results. It now expects 2018 net earnings of $11.80 to $12.05, up from the earlier projection of $11.70 to $11.95 per share. Adjusted net earnings have been raised to $12.50 to $12.75 from $12.40 to $12.65 per share guided earlier. Cash flows from operations are estimated to approach $15.5 billion.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month. There has been one revision higher for the current quarter compared to one lower.

UnitedHealth Group Incorporated Price and Consensus

UnitedHealth Group Incorporated Price and Consensus | UnitedHealth Group Incorporated Quote

VGM Scores

At this time, UNH has a nice Growth Score of B, though it is lagging a bit on the momentum front with a C. Charting a somewhat similar path, the stock was allocated 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 more suitable for value and growth investors than momentum investors.

Outlook

UNH has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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