UnitedHealth Group Looks Poised To Report Strong Q2 Results

UnitedHealth Group (NYSE: UNH) will report its Q2 2019 earnings on July 18. Consensus figures points to an 8% growth in revenues year-on-year to $60.59 billion, and a 16% increase in EPS figure to $3.45. Per Trefis, UnitedHealth Group’s stock has a fair value of $284, which is 5% higher than the current market price. We have analyzed trends in UnitedHealth’s Earnings over recent quarters in an interactive dashboard along with our expectations for full-year 2019. You can modify Trefis forecasts to see the impact of changes on UnitedHealth Group’s valuation. Additionally, you can see more Trefis data for Heath Care companies here.

A Quick Look At UnitedHealth Group’s Revenue Sources

UnitedHealth Group reported $286.2 billion in Total Revenues in FY 2018. This included 7 revenue streams.

• UnitedHealthcare Employer & Individual / Private Health Insurance: $54.8 billion in FY 2018 (19% of Total Revenues) – offers individual insurance and employer sponsored health insurance plans for employees
• UnitedHealthcare Medicare & Retirement / Medicare: $75.5 billion in FY 2018 (26% of Total Revenues) – provides healthcare services, primarily to individuals aged 65 or older
• UnitedHealthcare Community & State / Medicaid Managed Care: $43.4 billion in FY 2018 (15% of Total Revenues) – This division provides managed care solutions and insurance coverage to beneficiaries under Medicaid program of U.S. government
• UnitedHealthcare Global: $9.8 billion in FY 2018 (3% of Total Revenues) – It includes business from Amil S.A (Brazil) which provides health insurance and dental care plans for individuals and employees.
• OptumHealth: $24.1 billion in FY 2018 (8% of Total Revenues) – offers health and wellness services to individual, business and government customers
• OptumInsight: $9.0 billion in FY 2018 (3% of Total Revenues) – deals in software products along with information, advisory and outsourcing services
• OptumRx: $69.5 billion in FY 2018 (24% of Total Revenues) – responsible for processing and paying prescription drug claims of its clients

How Have UnitedHealth Group’s Revenues & Expenses Changed Over Recent Quarters?

• In Q1 2019, UnitedHealth Group reported Total Revenues of $60.3 billion, up by 9% y-o-y. This increase was mainly due to a 11.5% jump in UnitedHealthcare Medicare & Retirement followed by a 10.6% growth in OptumRx revenues.
• Further, OptumHealth revenues increased $1 billion y-o-y driven by care delivery, behavioral health and health financial services.
• Although Total Operating expenses was up 8% y-o-y in Q1 due to a jump in Medical cost by a figure of $2 billion, net income margin increased by 60bps on the back of strong revenues.
• Operating Cost as % of total revenues improved by 130 bps to 14.1% y-o-y driven by operational efficiency and deferred health insurance tax.

UnitedHealth Group’s Key Revenue & Expense Drivers

UnitedHealthcare Medicare & Retirement Revenues: In Q1 2019, these revenues were $21.1 billion – $2.2 billion higher than the figure a year ago. This increase could be attributed to an increase in Medicare advantage customer base by 405,000.  We expect the trend to continue in subsequent quarters and help the segment’s customer base cross 14.5 million by the end of 2019.

OptumRx: It has contributed around 70% of Optum’s revenues in the last four years. In Q1 2019, the segment reported $17.8 billion in revenues, 10.6% higher y-o-y. This growth was due to a 2.1% y-o-y increase in prescription volumes and a higher mix of specialty drugs. We expect the retail prescription volume to grow steadily to cross 1.4 million by the end of 2019.

UnitedHealth Group’s Outlook For Full Year 2019

• UnitedHealth Group is expected to report $309.7 billion in Total Revenues for 2019, which is 8% more than 2018.
• This could be attributed to a 11% growth in UnitedHealthcare Medicare & Retirement revenues followed by 4% growth in UnitedHealthcare Global revenues compared to the previous year.
• Further, Optum revenues are expected to increase by 10% in 2019 – primarily driven by a 15% jump in OptumHealth revenues and an 8% growth in OptumRx.
• Net Income is likely to increase by 17% y-o-y in 2019, as higher EBITDA and lower interest expense would boost the figure to $14.5 billion.
• UnitedHealth Group has regularly invested in share repurchases to boost shareholder returns. This trend is likely to continue in subsequent quarters and help its EPS figure reach $14.87 for FY 2019.
• EPS of $14.87 coupled with our forward P/E multiple of 19.1x represents a price estimate of $284 – representing a potential upside of 5% for the bank’s stock.

Do not agree with our forecast? Create your own forecast for UnitedHealth Group’s valuation by changing the base inputs (blue dots) on our interactive dashboard.

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