The health insurer’s
stock didn’t behave how its fundamental business performance would suggest.
Dan
Caplinger (TMFGalagan)
Apr 17,
2019 at 10:56AM
Over the
long run, stocks tend to rise or fall depending on how strong their fundamental
businesses perform. For UnitedHealth Group (NYSE:UNH), the health insurance industry has
led to immense growth, as the company has capitalized on opportunities and
found ways to outpace most of its rivals. However, even with the benefit of all
the positive things that UnitedHealth has produced in its business, investors
have recently been nervous about the potential for yet another round of healthcare reform and its perceived
impact on the health insurance industry.
Coming
into Tuesday's first-quarter financial report, UnitedHealth investors had
generally been nervous about the political climate and were looking for
reassurance about the company's ability to keep growing. UnitedHealth showed
just about every indication that long-term investors would want to see, and
with traders seemingly remaining disappointed about the possibility of
short-term political pressures, value investors have a new opportunity to look
at a strong business with improving prospects for the foreseeable future.
UnitedHealth
starts 2019 strong
UnitedHealth's
first-quarter results kept up the pace of growth that investors have sought
from the health insurance giant. Revenue of $60.3 billion was up 9% from
year-ago levels and better than the roughly 8% growth rate that most of those
following the stock were looking to see. Earnings grew an even healthier 19% to
$4.8 billion, and that produced adjusted earnings of $3.73 per share, beating
the consensus forecast among investors by $0.13 per share.
From a
segment perspective, UnitedHealth saw relative strength across most of its
business lines. The UnitedHealthcare division saw revenue pick up 8% to $48.9
billion, improving its operating earnings by 23% from year-ago levels. As we've
see in recent quarters, the greatest strength came from the Medicare and
retirement segment, which enjoyed double-digit-percentage top-line growth.
However, more modest gains also came from UnitedHealth's employer and
individual, community and state, and global units. Total customers served under
the division climbed by 880,000 members.
UnitedHealth's
Optum unit also saw solid gains, including a 12% rise in revenue to $26.4
billion and a 14% increase in operating earnings over the past year. The
OptumHealth health management business saw the sharpest growth rate, but the
OptumRx pharmacy benefit management business and the OptumInsight data
analytics unit also showed signs of good performance. OptumHealth now serves 93
million members, and OptumRx filled 339 million prescriptions in the quarter.
Fundamentally,
UnitedHealth stayed efficient. Consolidated medical care ratios rose slightly
to 82%, but the insurer still said that it was seeing favorable reserve
development during the quarter, and operating costs were significantly lower
than in the year-ago period.
Can
UnitedHealth keep growing in 2019?
As usual,
CEO David Wichmann confined his comments in the press release to praising his
employees for helping to improve "the health of the people we serve and
the performance of health systems for everyone" as a value-enhancing
proposition for society.
UnitedHealth
also gave investors good news on its outlook. The company now believes that
adjusted net earnings for the full 2019 year will come in between $14.50 and
$14.75 per share, which is up $0.05 to $0.10 per share from its previous
forecast.
Yet many people
seemed to focus on the company's conference call, during which Wichmann made
less favorable comments about the possibility of headwinds from regulatory
reform. In particular, the CEO called out various "Medicare for All"
initiatives as being potentially disruptive to the healthcare system, saying
that existing public and private programs can best meet the goal of universal
coverage.
Because
of that nervousness, UnitedHealth investors seemed to ignore the positive
guidance and instead worried about a worst-case scenario for the future, and
the stock fell 4% Tuesday after the report. Yet at least for now, UnitedHealth
seems to be doing everything right from a business standpoint, and that should
make long-term investors happy about the company's prospects years down the
road.
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