UnitedHealth Boosts Full-Year Earnings Forecast After Profit Beat

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UnitedHealth shares have declined only 1.3% this year, far better than the broader market.

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UnitedHealth Group posted second-quarter adjusted earnings that beat analysts’ forecasts and the company raised its earnings outlook for the full year.

UnitedHealth (ticker: UNH) reported adjusted earnings of $5.57 a share, topping estimates for $5.21 a share. Revenue was $80.3 billion, above forecasts for $79.7 billion, according to FactSet consensus estimates.

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The company said it expects full-year adjusted earnings of $21.40 to $21.90 ashare, up from previous expectations of $21.20 to $21.70. Analysts had been expecting $21.69.

“Customers are responding as we build on our five growth pillars, enabling us to move into the second half of 2022 with strong momentum serving ever more people more deeply,” said Andrew Witty, chief executive officer of UnitedHealth Group.

The stock rose 1.9% in premarket trading Friday.

During the previous quarter, UnitedHealth easily topped estimates and raised its fiscal-year forecast. The company attributed first-quarter earnings growth to the acceleration of its Optum sector. Optum again drove growth in the second quarter, with segment revenue growing 18% year over year to $45.1 billion.

The second quarter medical care ratio—which measures the percentage of premiums paid out as medical claims—was 81.5%, down from 82.8%. A lower ratio indicates higher profitability for the insurer, and indicates efficient cost management.

As the first managed care company to post earnings this season, UnitedHealth will be the “bellwether for the group,” according to Morgan Stanley,
From a preliminary standpoint, the report bodes well for the sector.

“This provides concrete evidence that the [managed care organizations] will likely report 2Q earnings beats largely across the board, given a benign medical cost environment,” wrote Stephens analyst Scott Fidel on Friday.

Fidel reiterated his Overweight rating on the stock and $580 price target.

Healthcare services have largely outperformed the market this year, holding their own against a challenging macroeconomic environment.

“The group commands significant commercial market pricing power to manage margins during periods of rising overall inflation,” Fidel wrote.

Investors have taken refuge in healthcare services because managed care organizations don’t face as many inflationary pressures given that contracts are frequently renegotiated, wrote Jefferies analyst David Windley. They’re also insulated from foreign exchange headwinds, which will impact many large cap companies this earnings season, he added.

But that doesn’t mean healthcare bets are risk-free.

A recession could lead to job losses across the economy, negatively impacting people’s access to health insurance and other services. Windley believes UnitedHealth’s business model is diversified enough to withstand the downturn — but as a major commercial insurance player, the company would feel some pressure if enrollments start to slow. That is why he maintained a Hold rating on the stock ahead of the earnings report and cut his price target to $487 from $497.

Morgan Stanley also trimmed its price target for the shares before the report’s release, to $570 from $577. The bank had a more optimistic view on the stock, however, and reiterated an overweight rating.

The company has scheduled a call with investors at 8:45 am Eastern Time. Other topics of interest to watch out for during the call include commentary about growth in the company’s Optum Health segment and regulatory scrutiny over UnitedHealth’s proposed $5.4 billion acquisition of LHC Group ( LHCG ), Morgan Stanley said.

UnitedHealth stock has risen 0.1% this year.

Write to Sabrina Escobar at [email protected]


Credit: www.marketwatch.com /

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