UnitedHealth Group (UNH – Free UnitedHealth Stock Report), the nation's largest health insurer and a Dow-30 component, has reported fourth-quarter and full-year figures for 2018. Both revenues and earnings came in ahead of our and Wall Street's calls. The shares initially responded a bit negatively in premarket trading, as investors here are used to larger earnings beats, but after the opening bell, UNH stock rose in the vicinity of 2% to north of $250 a share.
Revenues for the three-month period clocked in at $58.42 billion, which was up handsomely from the $52.06 billion posted in the year-earlier period and comfortably ahead of the consensus of $57.77 billion. Top-line growth was well-diversified, with broad-based strength in healthcare plan membership, premiums, and health services. Revenue from the legacy UnitedHealthcare segment was 11% higher than the same period of 2017, while sales from the various Optum branches jumped 13% year over year.
As far as earnings go, share net on an adjusted basis after the exclusion of nonrecurring items came in at $3.28, an impressive climb versus the fourth-quarter showing in 2017 of $2.58, and $0.07 ahead of our estimate. Most companies would see a significant rise in the underlying stock's quotation with a performance like this, but UNH is the bellwether for the medical services industry, and therefore is often held to a higher standard. Too, the market jitters of late have the investment community on edge, and apt to sell at the first sign of any trepidation. Separately, operating costs were up 12% on a year-over-year basis, led by a rise in medical costs and the cost of products sold. Still, the operating margin was able to improve by 10 basis points, to 7.7%. A higher membership base was a welcome sign. The company served 49.08 million lives during the period. That figure is more than 5% higher year over year due to growth in members served in the public and senior portions of the portfolio. Gains on the international scene have also helped with enrollment metrics, a needed development due to the numbers on the commercial side of the coin going down a bit.
Looking ahead to 2019, management reaffirmed its guidance for the year. Revenues are expected to tally between $243 billion and $245 billion, and we have lifted our figure by slightly over $100 million a quarter to get in line with the apex of this range. At the bottom line, the adjusted earnings expectation bracket has been set at $14.40 to $14.70 a share. Historically, UNH leadership has provided conservative spreads on the guidance front and then hurdled them with general ease. Therefore, we are adding a dime to our full-year 2019 figure, which now stands at $14.70 a share. This figure would represent a 14% annual gain from the 2018 earnings level of $12.87.
From an investment perspective, we think this high-quality selection (Safety: 1) is best suited for those looking at the market through a near-term lens. UNH shares likely have some room to run in the coming six to 12 months, as they currently sit about 10% below the all-time highs set in the latter stages of 2018. We tie the fall from these heights to the overall market malaise and not a company-specific matter. Longer term, appreciation potential is not great, and the yield trails the Value Line median by a full percentage point.
About The Company: UnitedHealth Group is a diversified health and wellbeing company dedicated to helping people live healthier lives and helping make the health system work better for everyone.. It offers a broad spectrum of products and services through four business segments: UnitedHealthcare (network-based health care benefits), Optum Health, OptumInsight, and OptumRx (information and technology-based health services, consulting, and PBM).
- Erik M. Manning
