UnitedHealth Group (UNH - Free UnitedHealth Stock Report), the nation's largest healthcare insurer and a Dow-30 component, has reported third-quarter financials that outpaced expectations in terms of both revenues and earnings. Moreover, management upped its bottom-line guidance for the balance of the year. Clearly, Wall Street liked what it heard in the quarterly release, as the stock surged on the news.
Revenues for the three-month window rose 7% year over year, to $60.4 billion, which was better than our $59.8 billion call. Optum results continued to pace the top-line gains. Sales increased more than 13% at the pharmacy benefits manager arm, to $28.8 billion; OptumRx saw nearly 6% growth among its revenues, which were $18.5 billion in the period; and OptumHealth posted the largest percentage gain versus third-quarter 2018 figures, at just shy of 35%, to $8.1 billion. UnitedHealthcare, the company's legacy health insurance business, also continued to put up admirable figures, while the investment community's fears about Medicare For All have kept UNH stock from keeping up the sharp rise in quotation it enjoyed through the last several years.
In terms of earnings, adjusted share net clocked in at $3.88, up 14% from the previous September-quarter showing, and ahead of our $3.77 call. Wall Street's consensus target was a couple of pennies lower at $3.75. Growth at the high-margin Optum lines have driven the profitability needle higher, and cost trimming wherever possible has also pitched in. Looking ahead to the remainder of 2019, management said that adjusted earnings are now expected in a range of $14.90 to $15.00 a share. This spread is a dime higher than the previously provided one and represents a $0.15 increase at the midpoint. UNH is a company known for providing conservative outlooks. With that, we are moving our share-net expectation for the full year to the apex of the new bracket, or $15.00. Our previous estimate was $14.85. Separately, after factoring in the top-line beat from the third quarter, we are boosting our full-year revenue target by just over $600 million, to an even $243 billion.
Even with this latest ascent in the quotation, UNH shares remain down year to date. This decline is in no way tied to the company's performance, as each of the three quarterly reports have been sound. The dip in its entirety can be traced back to market fears that a Democratic candidate will enact Medicare for All policies that may well wreak havoc on the U.S. healthcare insurance market. These concerns started with the rise of Bernie Sanders' stature in the political world and have now grown to include Elizabeth Warren, who has a healthcare plan that closely aligns with that of Mr. Sanders. The election is still a full year away, but investors have been cycling away from healthcare stocks in general, and UNH specifically, for several months now.
Our investment perspective is that these political concerns are very overblown. Until more concrete developments come about on this front, UNH's share price should be based on fundamentals, and at this time they are very strong. The recent dip in price may well have provided the entry point that some have been waiting for to get involved with this blue chip. Of course, with the election risk now in focus, this is not a situation for all parties. Regardless, three- to five-year total return potential is now worthwhile. This comes as the result of both the equity's dividend yield and appreciation prospects out to 2022-2024 currently being in line with their respective Value Line averages. Rock solid financials are another plus on this healthcare behemoth's resume.
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
