Key Trends Influencing UnitedHealth’s Q3 Performance

Upcoming Q3 Results: What to Expect from UnitedHealth Group

Analyzing Predictions and Market Influence Ahead of Earnings Report

UnitedHealth Group (NYSE: UNH) is set to release its Q2 2024 earnings report on Tuesday, October 15. Analysts project that UnitedHealth will generate $99 billion in revenue and earnings of $6.95 per share, slightly missing the market’s expectations. The company is likely to gain from the strong performance of its Optum Health division, alongside a growing membership base in its health insurance sector. However, a crucial area to monitor will be medical costs, which have seen an upward trend recently. While we anticipate a challenging quarter for UnitedHealth, we believe the stock is fairly valued at $590. More insights on how the company’s revenues and earnings may evolve can be found in our interactive dashboard analysis of UnitedHealth’s FY 2024Q3 Earnings Preview.

Key Forces Influencing UnitedHealth’s Q3 Outcomes

UnitedHealth is expected to benefit from an uptick in its insurance customer base, leading to higher premium collections. However, a decline in Medicaid membership could be a concern. Additionally, the international segment is projected to experience reduced membership and revenues as the company exits the Brazil market. Despite these setbacks, UnitedHealth should continue to thrive in its value-based care initiatives through the Optum segment. This area has been a key driver of sales growth and is expected to maintain its momentum. The OptumRx division should also report increased sales due to rising drug prices and a higher volume of prescriptions. Overall, these factors may contribute to an 8% year-over-year increase in the company’s revenue for the third quarter.

The profitability outlook reveals that UnitedHealth has faced pressure on its net margins recently due to escalating medical costs. We project a 200 basis points year-over-year rise in the medical care ratio during Q3. Additionally, the cyber attack impacting the Change Healthcare business earlier this year is expected to influence earnings. Consequently, we anticipate earnings growth will lag behind sales growth for the upcoming quarter.

Review of UnitedHealth’s Q2 Performance

In Q2, UnitedHealth Group reported revenue of $98.9 billion, marking a 6% year-over-year increase, driven by a 5% growth in UnitedHealthcare and a significant 12% rise in Optum sales. The medical care ratio for the quarter was recorded at 85.1%, reflecting a 190 basis points increase from the previous year. The company managed to keep its adjusted operating margin stable year-over-year at 8.7%, despite facing a $0.92 per share impact from the cyber attack. For the entire year, this impact is anticipated to range between $1.90 and $2.05 per share. The combination of higher revenue, stable operating margins, and a 1.3% decline in total shares outstanding contributed to an 11% year-over-year increase in per-share earnings, reaching $6.80 on an adjusted basis.

Implications for UNH Stock

We expect UNH stock to decline next week, as we predict that the upcoming earnings report will fall short of market expectations for both revenues and earnings. Investor attention will be focused on the medical care ratio; any notable deviation or adjustment in full-year earnings predictions could significantly influence UnitedHealth’s stock price in the near term.

Currently, we estimate UnitedHealth Group’s Valuation at $580 per share, close to the current price of $590. This valuation is founded on a price-to-earnings multiple of 21x for UNH, with anticipated adjusted earnings of $27.55 per share for the full year 2024. The 21x P/E ratio aligns with the stock’s average over the past three years, with the company forecasting earnings between $27.50 and $28.00 in 2024.

Notably, UNH is among a select few stocks that have consistently increased in value over the past three years. However, it has struggled to outperform the broader market during the same period. In contrast, the Trefis High Quality (HQ) Portfolio, consisting of 30 stocks, has exhibited less volatility and has outperformed the S&P 500 each year since 2021. This demonstrates that HQ Portfolio stocks generally provide better returns with reduced risk, resulting in smoother performance metrics.

Even though UNH stock appears fully valued, it’s beneficial to look at how UnitedHealth Group Peers measure up against crucial performance metrics. Additional comparisons among companies across different sectors can be found at Peer Comparisons.

[1] Returns as of 10/10/2024
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.