Shares of UnitedHealth Group (UNH - Free UnitedHealth Group Stock Report), the nation's largest healthcare insurer and a Dow-30 component, were up modestly in early trading today. The rise is tied to a strong first-quarter report, in which the company surpassed both our and Wall Street's estimates for the top and bottom lines. Coupled with this, the raising of guidance for the full year also pitched in on the shares' advance. UNH is the first of the medical insurers to report and can often be used as a bellwether for the medical services industry as a whole.
Revenues for the three-month period ended March 31st came in at $48.72 billion, whereas we had pegged that figure at $48.3 billion, slightly higher than the consensus call. The decision to exit the exchanges set up under the Affordable Care Act appears to be a very wise one at first blush. That business was losing money and taking United's focus away from the many positives of its bread-and-butter legacy medical insurance business. Subscribers will recall that the company was initially hesitant to get involved on this front, then after a waiting period jumped in to 30+ states. Presently, it is active in only three, with this portion representing a very small amount of total revenues, at a time when Congress has gone back to the drawing board in an effort to repeal/replace that piece of legislation. UNH's departure from this field has done little to deter membership growth, since it now serves 49.32 million members as opposed to 47.67 million in the year-earlier period. Medicare and Medicaid units are performing well, and employer-based insurance has been an area of ample gains. Of course, the Optum segments, which we have long touted for their pharmacy benefits and technological services, are still firing on all cylinders. Here, the $2.3 billion purchase of Surgical Care Affiliates, a company that runs surgery centers, will aid in a newer focus of Optum, operating clinics and doctor's offices. This purchase should help boost an already handsome top-line growth picture in the years ahead.
At the bottom line, the beat was even more impressive. Share net clocked in at $2.37 for the March period, roughly $0.20 better than the average estimate. Operating earnings from the insurance arm rose 15%, to $2.1 billion, even with the dip in individual enrollment due to the ACA pullout. Group insurance coverage seems to be the name of the game here, and we are not concerned with any aspect of this operation. Additionally, operating earnings jumped 16% at the Optum units, to $1.3 billion. Not surprisingly, this division continues to soar during a period of great uncertainty on the medical insurance front. Companies are coming to Optum seeking help from a number of angles, particularly to cut costs via outsourcing certain components of their business models. Advisory and IT needs are also a big concern for clients given the tumult and change that has swept through this field in the last few years, with more alterations likely in the not-too-distant future if the Trump Administration has its way.
On the heels of this overwhelmingly strong quarter, management has provided updated guidance for the full year of 2017. It now anticipates that revenues may well reach the $200 billion mark and that earnings will likely come in somewhere in a bracket of $9.65 to $9.85 a share. Therefore we are lifting our top-line expectation to that $200 billion level, it was previously at $198.9 billion. Too, we are placing our EPS call at the midpoint of the given range, or $9.75, our initial figure was in line with previously provided guidance of $9.50.
From an investment perspective, we think those not already on board have probably missed the boat with regard to UNH stock. Today's upward price movement has it back near 52-week highs and we think much of the good news listed above is already baked into the recent quotation. That said, at the right entry point, this blue chip could serve as a strong cornerstone for most portfolios. Rock-solid finances back up a growing dividend and it is the clear-cut leader in the medical insurance space. We just think subscribers should wait for a more opportune time to get involved.
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).
