It has been about a month since the last earnings report for UnitedHealth Group (UNH Quick QuoteUNH - Free Report) . Shares have lost about 0.9% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is UnitedHealth due for a breakout? 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 catalysts.

UnitedHealth's Q3 Earnings Beat, 2018 Guidance Raised

UnitedHealth Group Inc.’ third-quarter 2018 earnings of $3.41 per share surpassed the Zacks Consensus Estimate by 3.33%. The same was up 28% year over year.

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

UnitedHealth has a tradition of guiding conservatively and then surpassing its own estimates to surprise investors.

Strong Operating Performance

UnitedHealth posted revenues of $56.6 billion, which beat the Zacks Consensus Estimate by 0.9%. The same was up 12% year over year, led by strong revenue growth rates across both UnitedHealthcare and Optum segments.

Consolidated medical care ratio of 81% shrunk 40 basis points (bps) year over year.

The operating cost ratio of 15.0% increased 30 basis points year over year, as business mix changes and operating efficiencies were more than offset by the return of the health insurance tax.

Operating margin of 8.1% improved 60 basis points year over year.

Strong Performance Across Segments

In the reported quarter, the company’s health benefits segment, UnitedHealthcare, generated revenues of $45.9 billion, up 12.8% year over year. Revenue growth was driven by higher enrollment and increase in pricing. Earnings from operations grew 8.3% year over year to $2.6 billion.
Revenues from Optum improved 11% year over year to $25.4 billion, reflecting strong contributions from the sub-segments — OptumHealth, OptumInsight and OptumRx. Earnings from operations jumped 19.7% year over year to $2 billion. 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 48.97 million people in the quarter, up 6% year over year, led by growth in members served in the Public and Senior, and International segments, partially offset by lower Commercial membership.

Capital Position Update

Cash and short-term investments at quarter-end were $13.8 billion, down 10.6% from the 2017-end level.

Debt-to-total capital ratio was 38.9% on Sep 30, 2018, having contracted two percentage points sequentially.

Cash flow from operations declined to $13.32 billion in the first nine months of 2018, compared with 16.2 billion generated in the comparable prior period year.

2018 Guidance Update

UnitedHealth revised its 2018 financial outlook, buoyed by solid third-quarter results. It now expects 2018 net earnings to be near to $12.10 from its previous expectation range of $11.80 to $12.05. Adjusted net earnings have been raised to reach $12.80 from the previous target range of $12.50 and $12.75.

 

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

At this time, UnitedHealth has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, 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.

Outlook

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