UnitedHealth Group Inc. (NYSE:UNH) reported first-quarter net operating earnings per share of $2.37, comfortably beating the Zacks Consensus Estimate of $2.18 and increasing 31% year over year. Higher revenues, strength in both the segments – UnitedHealthcare and Optum – and membership growth prompted the outperformance.
UnitedHealth has a tradition of guiding conservatively and then beating its own estimates to surprise investors. Since 2009, the company has surpassed expectations in 25 out of 28 reported quarters and the trend continued in the quarter under review. The stock gained 2.28% in the pre-market trading session and we expect continued outperformance to drive the stock higher.
Behind the Headlines
UnitedHealth posted net revenue of $48.7 billion, outpacing the Zacks Consensus Estimate of $48.24 billion. Further, revenues were up 9.4% year over year.
The company reported medical care ratio of 82.4%, up 70 basis points year over year.
Total operating cost came in at $45.3 billion, 8.9% higher year over year. The increase stemmed primarily from higher medical and operating costs.
Segment Performance
In the reported quarter, UnitedHealth’s health benefits segment – UnitedHealthcare – reported revenues of $40.1 billion, up 11.8% year over year. Earnings from operations increased 15% year over year to $2.1 billion.
Revenues from Optum improved 7.9% year over year to $21.2 billion, reflecting strong contribution from the subsegments OptumHealth and OptumInsight as well as OptumRx. Earnings from operations surged 15.6% year over year to $1.3 billion. Continued focus on accelerating growth as well as improving margins and productivity through enhanced integration and business alignment led to the overall improvement of this segment.
Membership Enrollment
The company’s total medical membership at the end of the reported quarter was 49.32 million, up from 47.7 million in the year-ago quarter.
Capital Position
Cash and short-term investments at quarter end were $19.4 billion, up 46% from the 2016-end level.
Debt to total capital ratio decreased 550 basis points year over year to 43.5% at Mar 31, 2017.
Adjusted cash flows were $2.0 billion compared with $2.3 billion in the year-ago quarter.
The company repurchased shares worth $682 million in the quarter.
Guidance Update
Driven by strong first-quarter earnings, the company pulled up its 2017 guidance. It now expects revenues of $200 million, up from the previous guidance of $197 billion to $199 billion. The projected GAAP net earnings range of $9.10 to $9.30 per share and adjusted net earnings of $9.65 to $9.85 per share are up from the previous forecasts of $8.75 to $9.05 and $9.30 to $9.60, respectively. Cash flows from operations of $12 billion are looking up from $11.5 billion to $12 billion forecast earlier.
Developments During the Quarter
UnitedHealth announced the acquisition of Surgical Care Affiliates – a leading provider of ambulatory surgical center and hospital surgical services. The deal will deepen Optum’s already strong market position in primary, urgent and surgical care services.
UnitedHealth carries a Zacks Rank #2 (Buy).
Other Stocks That Warrant a Look
UnitedHealth has come up with a flying start to this reporting cycle. While the other players in the space are lined up to report their financial results, below are three that are poised to beat on earnings as per our model.
Pra Health Sciences Inc. (NASDAQ:PRAH) is expected to report first-quarter earnings results on Apr 26. The company has an Earnings ESP of +1.72% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Medicines Company (NASDAQ:MDCO) has an Earnings ESP of +8.85% and a Zacks Rank #3. The company is expected to report first-quarter earnings results on Apr 26.
Anthem Inc. (NYSE:ANTM) has an Earnings ESP of +7.67% and a Zacks Rank #2. The company will report first-quarter earnings results on Apr 26.
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The Medicines Company (MDCO): Free Stock Analysis Report
UnitedHealth Group Incorporated (UNH): Free Stock Analysis Report
Anthem, Inc. (ANTM): Free Stock Analysis Report
PRA Health Sciences, Inc. (PRAH): Free Stock Analysis Report
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