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UnitedHealth (UNH) Pre-Q2 Earnings: Healthy Buy or a Wait-&-See?
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UnitedHealth Group Incorporated (UNH - Free Report) is set to report second-quarter 2024 results on Jul 16, 2024, before the opening bell. Growing premiums, commercial memberships and Optum business are expected to have supported its performance.
The Zacks Consensus Estimate for second-quarter earnings is currently pegged at $6.68 per share, implying solid growth of 8.8% from the year-ago reported number. However, the estimate was revised downward by two analysts in the past month, resulting in a decline of 2 cents from $6.70 per share. The Zacks Consensus Estimate for second-quarter revenues is currently pegged at almost $99 billion, suggesting a 6.5% uptick from the year-ago actuals.
Image Source: Zacks Investment Research
UnitedHealth has a robust history of surpassing earnings estimates, beating the consensus in each of the last four quarters, with the average being 3.7%
Image Source: Zacks Investment Research
Q2 Earnings Whispers
Our proven model predicts an earnings beat for the company this time around as well. UNH has an Earnings ESP of +1.06% as the Most Accurate Estimate of $6.76 per share is currently pegged higher than the Zacks Consensus Estimate of $6.68. Also, it currently has a Zacks Rank #3 (Hold). The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 increases the chances of an earnings beat, which is precisely the case here. You can see the complete list of today’s Zacks #1 Rank stocks here.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Factors Shaping Q2 Results
UnitedHealth's second-quarter earnings are expected to have benefited from higher premiums, driven by the expansion of its commercial membership base. The Zacks Consensus Estimate for premium revenues for the second quarter indicates 6.3% year-over-year growth, whereas our model estimate predicts a 5.9% increase. Increased contributions from both Optum Health and its health benefits divisions are expected to have supported premium growth.
UNH's second-quarter top-line performance is expected to have been enhanced by a rise in service revenues across the board. The consensus estimate implies an almost 7% jump in service revenues. Similarly, we expect product revenues to have seen more than 8% year-over-year growth, while the Zacks Consensus Estimate indicates an above 9% increase.
Now let’s focus on memberships in selected programs. The Zacks Consensus Estimate for UnitedHealthcare’s total domestic commercial customers suggests 3% year-over-year growth. The consensus mark for Medicare Advantage members indicates a 3.6% year-over-year rise, whereas our estimate implies a 3.4% gain.
However, the consensus estimate for Medicaid memberships implies an 8.8% decline from the year-ago level, while our model estimate suggests an 8.5% slip. Also, both the consensus mark and our model estimate for international memberships indicate close to a 60% year-over-year plunge. This is likely to have pulled total memberships down from the year-ago period. While we estimate the decline to be nearly 5%, the consensus estimate implies an almost 4% fall.
We expect higher contributions from each of the sub-segments of the Optum business segment in the second quarter. A rise in the number of people being catered to in value-based care arrangements, enhanced technology-enabled offerings and growth in its specialty and community-based pharmacy offerings are major tailwinds.
The Zacks Consensus Estimate for operating income from the Optum business segment suggests a 15.7% year-over-year increase, while the same from UnitedHealthcare indicates nearly 2% growth. These are expected to have positioned the company for not only year-over-year growth but also an earnings beat in the second quarter.
However, rising medical and operating costs are expected to have elevated UnitedHealth’s overall expenses in the quarter. The expected growth in healthcare utilization, especially in the Medicare Advantage space, might have affected margins. Additionally, seniors resuming elective procedures are expected to have raised medical costs.We expect higher costs of products sold to have further reduced its margins. Our model estimate for total operating costs indicates an almost 7% increase from the prior-year period.
The Zacks Consensus Estimate for UNH’s medical care ratio is pegged at 84.22%, up from 83.20% in the year-ago quarter. Our estimates for medical costs and costs of products soldindicate 7.4% and 11.7% year-over-year increases, respectively.
Also, Optum survived a blow from a cyber-attack on its Change Healthcare business in the first quarter and was estimated to take a hit of around $1.6 billion. The company expects to incur direct response costs in the range of 85-95 cents per share for full-year 2024, along with a business disruption impact of 30-40 cents. These factors are expected to have partially affected its profit growth levels in the second quarter.
Price Performance & Valuation
UnitedHealth's stock has exhibited a downward movement, shedding a notable percentage over the year-to-date period. It has declined 4.2% compared with the industry’s fall of 4.8%. A similar movement was witnessed by some of its peers like Humana Inc. (HUM - Free Report) and Molina Healthcare, Inc. (MOH - Free Report) , which have plunged 17% and 19.7%, respectively, during this time. Additionally, these stocks have lagged the S&P 500 significantly, which rallied 18.8% during the same period.
YTD Price Performance
Image Source: Zacks Investment Research
Now, let’s look at the value UnitedHealth offers investors at current levels.
The company’s valuation looks somewhat stretched compared with the industry average. Currently, UNH is trading at 17.22X forward 12 months earnings, above the industry’s average of 15.16X.
Image Source: Zacks Investment Research
In comparison, Humana is even less attractively valued, trading at 20.99X forward 12 months earnings. Molina Healthcare, on the other hand, is trading at 11.48X, offering a better value at the moment.
Investment Thesis: Hold The Line
UnitedHealth’s diversified portfolio and strategic growth initiatives in home healthcare, commercialbusiness and AI-driven analytics offer promising long-term growth prospects. Its estimated earnings growth rate of 12.3% for the next five years compares favorably with the industry average of 11.6%. The company continues to reward shareholders with substantial dividends and share repurchases, underpinned by strong cash flow and operational resilience. However, challenges such as the impacts of the recent cyber-attack, regulatory investigations, margin pressures due to lower-than-expected Medicare rates and rising medical costs could limit short-term stock performance. Investors should closely monitor these factors.
Conclusion
UnitedHealth remains a strong candidate for a "Hold" position. While its long-term prospects are promising, investors should avoid rushing to buy the stock. Instead, they should closely monitor developments to identify a more appropriate entry point, as a hasty decision could negatively impact portfolio gains. Those already holding UNH stock can maintain their position, as the upcoming earnings report is expected to reaffirm the company's strong operational performance.
Image: Bigstock
UnitedHealth (UNH) Pre-Q2 Earnings: Healthy Buy or a Wait-&-See?
UnitedHealth Group Incorporated (UNH - Free Report) is set to report second-quarter 2024 results on Jul 16, 2024, before the opening bell. Growing premiums, commercial memberships and Optum business are expected to have supported its performance.
The Zacks Consensus Estimate for second-quarter earnings is currently pegged at $6.68 per share, implying solid growth of 8.8% from the year-ago reported number. However, the estimate was revised downward by two analysts in the past month, resulting in a decline of 2 cents from $6.70 per share. The Zacks Consensus Estimate for second-quarter revenues is currently pegged at almost $99 billion, suggesting a 6.5% uptick from the year-ago actuals.
UnitedHealth has a robust history of surpassing earnings estimates, beating the consensus in each of the last four quarters, with the average being 3.7%
Image Source: Zacks Investment Research
Q2 Earnings Whispers
Our proven model predicts an earnings beat for the company this time around as well. UNH has an Earnings ESP of +1.06% as the Most Accurate Estimate of $6.76 per share is currently pegged higher than the Zacks Consensus Estimate of $6.68. Also, it currently has a Zacks Rank #3 (Hold). The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 increases the chances of an earnings beat, which is precisely the case here. You can see the complete list of today’s Zacks #1 Rank stocks here.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Factors Shaping Q2 Results
UnitedHealth's second-quarter earnings are expected to have benefited from higher premiums, driven by the expansion of its commercial membership base. The Zacks Consensus Estimate for premium revenues for the second quarter indicates 6.3% year-over-year growth, whereas our model estimate predicts a 5.9% increase. Increased contributions from both Optum Health and its health benefits divisions are expected to have supported premium growth.
UNH's second-quarter top-line performance is expected to have been enhanced by a rise in service revenues across the board. The consensus estimate implies an almost 7% jump in service revenues. Similarly, we expect product revenues to have seen more than 8% year-over-year growth, while the Zacks Consensus Estimate indicates an above 9% increase.
Now let’s focus on memberships in selected programs. The Zacks Consensus Estimate for UnitedHealthcare’s total domestic commercial customers suggests 3% year-over-year growth. The consensus mark for Medicare Advantage members indicates a 3.6% year-over-year rise, whereas our estimate implies a 3.4% gain.
However, the consensus estimate for Medicaid memberships implies an 8.8% decline from the year-ago level, while our model estimate suggests an 8.5% slip. Also, both the consensus mark and our model estimate for international memberships indicate close to a 60% year-over-year plunge. This is likely to have pulled total memberships down from the year-ago period. While we estimate the decline to be nearly 5%, the consensus estimate implies an almost 4% fall.
We expect higher contributions from each of the sub-segments of the Optum business segment in the second quarter. A rise in the number of people being catered to in value-based care arrangements, enhanced technology-enabled offerings and growth in its specialty and community-based pharmacy offerings are major tailwinds.
The Zacks Consensus Estimate for operating income from the Optum business segment suggests a 15.7% year-over-year increase, while the same from UnitedHealthcare indicates nearly 2% growth. These are expected to have positioned the company for not only year-over-year growth but also an earnings beat in the second quarter.
However, rising medical and operating costs are expected to have elevated UnitedHealth’s overall expenses in the quarter. The expected growth in healthcare utilization, especially in the Medicare Advantage space, might have affected margins. Additionally, seniors resuming elective procedures are expected to have raised medical costs.We expect higher costs of products sold to have further reduced its margins. Our model estimate for total operating costs indicates an almost 7% increase from the prior-year period.
The Zacks Consensus Estimate for UNH’s medical care ratio is pegged at 84.22%, up from 83.20% in the year-ago quarter. Our estimates for medical costs and costs of products soldindicate 7.4% and 11.7% year-over-year increases, respectively.
Also, Optum survived a blow from a cyber-attack on its Change Healthcare business in the first quarter and was estimated to take a hit of around $1.6 billion. The company expects to incur direct response costs in the range of 85-95 cents per share for full-year 2024, along with a business disruption impact of 30-40 cents. These factors are expected to have partially affected its profit growth levels in the second quarter.
Price Performance & Valuation
UnitedHealth's stock has exhibited a downward movement, shedding a notable percentage over the year-to-date period. It has declined 4.2% compared with the industry’s fall of 4.8%. A similar movement was witnessed by some of its peers like Humana Inc. (HUM - Free Report) and Molina Healthcare, Inc. (MOH - Free Report) , which have plunged 17% and 19.7%, respectively, during this time. Additionally, these stocks have lagged the S&P 500 significantly, which rallied 18.8% during the same period.
YTD Price Performance
Image Source: Zacks Investment Research
Now, let’s look at the value UnitedHealth offers investors at current levels.
The company’s valuation looks somewhat stretched compared with the industry average. Currently, UNH is trading at 17.22X forward 12 months earnings, above the industry’s average of 15.16X.
Image Source: Zacks Investment Research
In comparison, Humana is even less attractively valued, trading at 20.99X forward 12 months earnings. Molina Healthcare, on the other hand, is trading at 11.48X, offering a better value at the moment.
Investment Thesis: Hold The Line
UnitedHealth’s diversified portfolio and strategic growth initiatives in home healthcare, commercialbusiness and AI-driven analytics offer promising long-term growth prospects. Its estimated earnings growth rate of 12.3% for the next five years compares favorably with the industry average of 11.6%. The company continues to reward shareholders with substantial dividends and share repurchases, underpinned by strong cash flow and operational resilience. However, challenges such as the impacts of the recent cyber-attack, regulatory investigations, margin pressures due to lower-than-expected Medicare rates and rising medical costs could limit short-term stock performance. Investors should closely monitor these factors.
Conclusion
UnitedHealth remains a strong candidate for a "Hold" position. While its long-term prospects are promising, investors should avoid rushing to buy the stock. Instead, they should closely monitor developments to identify a more appropriate entry point, as a hasty decision could negatively impact portfolio gains. Those already holding UNH stock can maintain their position, as the upcoming earnings report is expected to reaffirm the company's strong operational performance.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.