UnitedHealth Group, (UNH - Free UnitedHealth Group Stock Report) the nation's largest health insurer and a Dow-30 component, has reported results for the fourth quarter and full-year 2017. The company beat both revenues and earnings expectations and significantly lifted its outlook for earnings in 2018 to reflect the changing tax code. On the heels of this positive news, the stock was up modestly and is now trading comfortably north of $230 a share.
In terms of revenues, the top-line tally for the three-month period clocked in at $52.1 billion, handsomely ahead of our $51.2 billion call and the slightly more aggressive consensus on Wall Street. Too, this figure represents a 10% year-over-year incline. Gains came from both the legacy health insurance arm and the Optum branches. The stout figures were aided by a sharp uptick in demand for the company's goods and services. UnitedHealthcare served two million more customers, largely coming from the Medicare and retired segment, and Optum added eight million new members to its roster to close 2017 with 91 million customers under its various umbrellas. The increases are even more impressive when factoring in that UNH exited the markets setup under the Affordable Care Act early. Further, contributions from overseas entities are growing; the global division, aided by acquisitions and strong pricing, saw sales jump roughly 25% in 2017. In all, management achieved its goal of eclipsing $200 billion in annual sales, with that figure coming in at more than $201 billion, or 9% higher than the full-year 2016 number.
From an earnings perspective, share net came in at $2.59, or $0.08 above the consensus call. Improved revenues and enrollment gains were the driving force behind the beat. Leadership's efforts to improve efficiency were on display, as the net margin registered 6.9%, a sizable advance from the 3.5% figure posted to close out last year. Tax reform was a hot topic of the quarter, with United realizing a nice gain from the reduction in corporate taxes. Without even getting into the effect on the future of the business, management cited a benefit equating to $1.22 a share stemming from the tax liabilities already on its balance sheet. It can now pay these past items off at the lower prevailing rates and produce that one-time windfall. After adding in the fourth-quarter result, EPS for the year tallied to $10.08, an annual advance of some 25%.
Elsewhere, management painted a very optimistic bottom-line picture for 2018. CEO David Wichmann talked about momentum and opportunity before introducing an earnings bracket for the current year of $11.65 to $11.95 per share. Yes, tax tailwinds should be plentiful, but it is not as if the underlying business will not carry any of the load. UNH will continue to lead the health insurance space, and growth prospects for the Optum branches remain robust. In turn, we are boosting our 2018 bottom-line expectation by $1.00 a share, to $11.85, and think the potential for further upward revisions is plentiful as the year rolls on. Also, we are lifting our full-year revenue estimate to an even $220 billion to reflect the strong enrollment levels cited above, our original revenue number was about $2 billion lower.
Even with this strong report, we are hesitant to recommend UNH stock to long-term investors at current price points, as the shares are selling near an all-time high. Even with a generous increase in our 3- to 5-year Target Price Range, the shares still trade noticeably above this bracket. Consequently, appreciation aspirations over that span are in the red. Separately, the dividend payout is growing and well supported, but does not stand out on a yield basis when placed up against the Value Line median. Short-term momentum plays to get some last drops of juice out of this orange are likely the best rationales for getting involved here.
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 two business segments: UnitedHealthcare (network-based health care benefits) and Optum (information and
technology-based health services).
— Erik M. Manning
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
