What To Expect From UnitedHealth’s Q4?

UnitedHealth Group stock (NYSE: UNH) is scheduled to report its Q4 2020 results on Wednesday, January 20. We expect UnitedHealth to likely beat the revenue and earnings expectations, driven by higher prescription volume. We expect the company to navigate well based on these trends over the latest quarter.

Our forecast indicates that UnitedHealth’s valuation is around $359 per share, which is 2% higher than the current market price of around $351. Our interactive dashboard analysis on UnitedHealth Group Pre-Earnings has additional details.

(1) Revenues expected to be slightly ahead of consensus estimates

Trefis estimates UnitedHealth’s Q4 2020 net revenues to be around $65.2 Bil, slightly ahead of the $65.1 Bil consensus estimate. A deferment in elective surgeries earlier in 2020 amid the spread of Covid-19 resulted in lower prescription volume, and higher unemployment meant a reduction in corporate insurance revenues. However, this was offset by growth in enrollments for government sponsored insurance plans. And now with the economy opening up and elective surgeries being attended to, the prescription volume is expected to be higher. The company’s OptumHealth segment, which provides care through local medical groups, has been expanding its reach to 98 million people as of Q3 2020 compared to 91 million in 2017. This has boded well for UnitedHealth’s top line growth over the recent past, and this trend will likely continue in the near term. UnitedHealth’s Q3 2020 sales were up 8% to $65.1 billion, led by gains in all segments. Our dashboard on UnitedHealth Group Revenues offers more details on the company’s segments.

2) EPS also likely to be ahead of consensus estimates

UnitedHealth’s Q4 2020 adjusted earnings per share (EPS) is expected to be $2.44 per Trefis analysis, just 1% above the consensus estimate of $2.41. UnitedHealth’s adjusted net income of $3.4 billion in Q3 2020 reflected a 9% drop from its $3.7 billion figure in the prior-year quarter. This can be attributed to increased operating costs during the pandemic. For the full-year, we expect the adjusted EPS to be higher at $16.80 compared to $15.11 in 2019.

(3) Stock price estimate higher than the current market price

Going by our UnitedHealth Group’s Valuation, with an EPS estimate of around $16.80 and a P/E multiple of around 21x in 2020, this translates into a price of $359, which is 2% above the current market price of around $351.

Although a growth in procedure volume will result in higher medical costs for the company, when looked at as a percentage of premium, it has thus far declined to 77.7% for the nine months ending September 2020 from 82.5% over the prior year period, and it will likely remain lower for the full year, aiding its earnings growth.

Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year

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