Here's
one thing, of many things, United must do to meet or beat its earnings per
share forecast for 2020.
Jacob Sonenshine Dec 3, 2019 10:38 AM EST
UnitedHealth's
(UNH - Get Report) guidance may not be anything to
worry about, even though the stock fell Tuesday.
Shares of
the health insurance giant fell 1.02% to $276.80 Tuesday, while the S&P 500 fell 0.86% on
trade deal pessimism.
UnitedHealth is
TheStreet's premium sister site RealMoney's stock of the
day. See here for all of
the latest analysis on the stock.
UnitedHealth
announced just before its investor day that it's forecasting 2020 adjusted
earnings per share of between $16.25 and $16.55, with the midpoint
of $16.40 missing analysts estimates of $16.46 by 3%. Still, the company guided
for revenue of between $260 billion and $262 billion, better than analysts
expectation of $260.2 billion.
But
there's good news in all of this.
Management
usually guides conservatively. In fact, UnitedHealth has beaten adjusted EPS
estimates in each of its last 8 quarters and it has beaten revenue estimates in
6 of its last 8 quarters.
History
aside, there are a few keys investors should be watchful of in 2020, with one
of the most important being United's medical loss ratio. That ratio shows
the amount in payouts made by the company versus the amount in premiums it
takes in. The midpoint forecast for the company's 2020 medical loss ratio is
81.7%, meaning that management expects that, for every dollar it earns in
premiums, it will payout roughly 82 cents to customers. Investors certainly
want to see United keep that percentage at 81.7%, but the lower that number
goes, the more of a lift to free cash flow the company will see. Since 2017,
United's ratio has been between 80% and 82%.
Also
among "the big moving pieces in 2020," according to Deutsche Bank
analyst George Hill, is the following:
"We
expect United to continue to post growth in its Medicare Advantage business and
deliver improvements in Medicaid as well in 2020," Hill said. Hill kept
his $263 price target unchanged.
United
Health is a holding in Jim Cramer's Action Alerts
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