Another great quarter for UnitedHealth stock cements its place
as the industry's name to beat
Apr 25, 2018, 11:02 am EDT
By JAMES BRUMLEY, InvestorPlace Feature
Writer
http://bit.ly/2JoJLYm
Up nearly 40% for the
past 12 months heading into Tuesday morning’s earnings report, UnitedHealth Group Inc (NYSE:UNH) was understandably nervous.
Following the release of the company’s fiscal first-quarter results,
UnitedHealth stock holders remembered why they were willing to hold the stock
through the news. The health insurer was all aces last quarter, and for good measure,
upped its full-year profit outlook.
That doesn’t
necessarily make UNH a buy just yet. Already up quite a bit for the past
several years, Tuesday’s gain of more than 3% exacerbated the stock’s
overbought condition. For investors who can be patient making an entry though,
UnitedHealth stock is a name well worth adding to your watchlist if it’s not
yet in your portfolio.
UnitedHealth Stock
Earnings Recap
For the quarter ending
in March, UnitedHealth turned $55.2 billion worth of revenue into a per-share
profit of $3.04. Analysts were only modeling earnings of $2.92 per share and sales of $54.9
billion. Better yet, the top line was up 13.3% year-over-year, while
operational earnings grew 28%.
The report was a sigh
of relief for some owners of UnitedHealth stock who were concerned that a nasty flu season might sap profits.
More flu cases means
more reimbursable doctor visits, and in some cases can mean more hospital stays
that would be covered by the insurer, but it didn’t create the cost problem some had feared. In
fact, the company’s medical coverage costs fell 82.4% for the comparable
quarter a year earlier to 81.4% this time around.
UnitedHealth Sets the
Tone
Against a backdrop of
industry mergers — some consummated, others only rumored — intended to improve
margins via vertical integrations, UnitedHealth Group is tacitly the name other
players are trying to mimic. The company operates Medicare Advantage and
Medicaid businesses on top of its mainstream health insurance arm, but is also
an owner/operator of clinics, urgent care and surgery centers. It’s even a
pharmacy benefits manager, with its Optum arm, which saw its profits soar 29% to $1.7 billion last quarter.
While it’s arguably the name in the business to beat,
UnitedHealth Group’s success last quarter portends good news for owners of
rivals like Anthem Inc (NYSE:ANTM), CIGNA Corporation(NYSE:CI) and Humana Inc (NYSE:HUM). Cantor Fitzgerald analyst
Steven Halper said of the matter, “UnitedHealth certainly sets the tone for the
group … investors tend to look at United as the bellwether for the other
companies.”
Leerink analyst Ana
Gupte went as far as to say UnitedHealth’s Q1 meant the whole industry “is
poised to showcase solid fundamentals.”
Anthem is the next of
those companies to post last quarters numbers, slated to unveil those results
Wednesday. Humana will deliver its first quarter numbers on May 2, and CIGNA
will share last quarter’s results the following day.
Looking Ahead for
UnitedHealth Stock
In light of last
quarter’s stellar results, UnitedHealth upped its 2018 profit guidance. It had
been looking for earnings of between $12.30 and $12.60 per share of
UnitedHealth stock. That range has been upped to between $12.40 and 12.65.
Analysts were modeling an average of $12.54.
Perhaps even more
exciting is the company’s outlook for its medical cost ratio to remain at 81.5% of revenue for the rest of the
year, plus or minus 50 basis points.
There are still things
that could conceivably go wrong for the company, bringing the long-standing
rally from UnitedHealth stock to a screeching halt. More regulation, more
competition and government-controlled pricing are just a few of them. But as
Gupte observed, “None of that seems to be happening,” and certainly not from a
lack of opportunity.
As
of this writing, James Brumley did not hold a position in any of the
aforementioned securities. You can follow him on Twitter, at @jbrumley.
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