UnitedHealth Earnings Preview: Open Enrollment Period To Drive Results

UnitedHealth Group (NYSE:UNH) is scheduled to report its first quarter earnings on Thursday, April 16. ^[1] During 2015, UnitedHealth expects to cross $140 billion in revenues and is guiding for EPS of $6.00-6.25. UnitedHealth beat market expectations in 2014, with earnings per share (EPS) rising to $5.70 from $5.50 in 2013. ^[2] The company improved its top line despite fears of an adverse impact from the Affordable Care Act (ACA), with consolidated revenues crossing $130 billion during the year. Operating earnings at $10.2 billion were better by about 7% year-over-year. ^[3] The company benefited from exceptional growth across its divisions, particularly the Optum and Medicaid divisions.

We expect the company’s increased participation in the second open enrollment period (OEP) on healthcare exchanges, along with increased customer participation, to impact the company’s first quarter results. Additionally, the Optum division is likely to continue its good run. 

We have a price estimate of $105 for UnitedHealth’s stock, which is slightly below the current market price.

See Full Analysis For UnitedHealth Group Here

Enrollments Hit New High

The second open enrollment period began in November 2014 and ended on February 15. Overall, 11.4 million consumers purchased or renewed health insurance coverage during the period, up from about 8 million last year. UnitedHealth expanded its presence on health insurance exchanges from less than a dozen to 23 during the second OEP. The larger presence was partially reflected in company’s the Q4 2014 results when it added 135,000 customers in its Medicaid program. Another 35,000 customers were added to the Medicare Supplement product line during the same period. But these figures represented only the first half of the OEP, during which time only about 6.6 million enrollments had occurred. We expect the second half – and the remaining 4.8 million enrollments – to aid the company’s top line growth. ^[4]

Consumer participation on healthcare exchanges is likely to continue to rise going forward. According to the Congressional Budget Office (CBO), enrollments on health insurance exchanges will touch 25 million in 2017. UnitedHealth, being the largest health insurer, is well positioned to capitalize on the vast business opportunity.

Optum

The Optum division saw a  stellar performance in 2014. In the fourth quarter, the segment’s earnings shot up by 53% year-over-year, with a robust 23% year-over-year increase in revenues to $13 billion. We expect the division’s growth momentum to continue in the first quarter as well. Recently, UnitedHealth agreed to acquire Catamaran Corporation, to boost its presence in the high growth pharmacy benefits management (PBM) market in the U.S. This will make the combined OptumRx-Catamaran entity the third largest player with around a 20% market share. ^[5] OptumRx was an outstanding performer in 2014 as it registered 10% y-o-y growth in retail prescriptions filled. We expect to hear more details on the acquisition, which will have a long term impact on the company’s growth, in the coming earnings release.

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1. First Quarter, 2015 Earnings Conference Call Presentation, UnitedHealth Investor Relations [↩]
2. SEC 8-K Filing, January 21 2015 [↩]
3. UnitedHealth Group’s (UNH) CEO Stephen Hemsley on Q4 2014 Results – Earnings Call Transcript, Seeking Alpha [↩]
4. Open Enrollment Week 7: December 27, 2014 – January 2, 2015, U.S. Department of Health and Human Services [↩]
5. Catamaran and OptumRx to Combine, UnitedHealth Press Release [↩]