Earnings Preview: UnitedHealth looks poised to end FY24 on a positive note

UnitedHealth Group (NYSE: UNH), a leading provider of health insurance and healthcare services, is expected to report fourth-quarter earnings next week. The company, a market leader in the nation’s colossal healthcare industry, delivered a mixed performance in 2024 amid headwinds like Medicare rate cuts and rising healthcare costs.

The diversified company has an impressive track record of dividend payments, almost doubling the payout in the past five years. That makes it an attractive investment for income investors. Increasing profitability and the management’s optimistic earnings outlook for the year suggest more dividend hikes. In 2024, UnitedHealth’s stock grew steadily and set a new record, but suffered a sharp fall and reversed most of those gains after the tragic assassination of UnitedHealthcare CEO Brian Thompson in early December. However, it is regaining momentum ahead of the earnings.

The company will publish its fourth-quarter report on Thursday, January 16, at 5:55 am ET. On average, analysts following UnitedHealth predict adjusted profit of $6.75 per share for the quarter, compared to $6.16 per share in Q4 2023. It is estimated that total revenues rose 7.8% year-over-year to $101.78 billion in the final three months of fiscal 2024.

Outlook

In the September quarter report, the management said it expects full-year 2024 earnings to be in the range of $27.50 per share to 27.75 per share, adjusted for one-off items. At the midpoint, the estimate is higher than the profit the company earned in 2023. Unadjusted profit is expected to be between $15.50 per share and 15.75 per share in FY24.

The business has faced pressure from rising healthcare costs, leading to increased claim payouts to customers. The new regulation allowing the government to directly negotiate drug prices with pharmaceutical companies to reduce drug costs for Medicare beneficiaries is adding to the strain on revenues. While UnitedHealth has strong fundamentals and a healthy balance sheet, it has a relatively high debt. The good news is that the company’s cash flows have been quite strong.

From UnitedHealth’s Q3 2024 earnings call:

“For over 20 years, there has been a bipartisan consensus among healthcare experts and policymakers that value-based care that is integrated, patient-centered, and outcome-focused care is superior to the often fragmented and unnecessarily expensive fee-for-service system. Across four presidential administrations, CMS has called for private-public innovation in the development of value-based care models in Medicare and Medicaid. It provides better outcomes for patients. It saves money for the customers and taxpayers who fund care.“

Key Metrics

In the third quarter, revenues grew by 9% to about $100 billion and slightly exceeded Wall Street’s expectations, continuing the recent trend. All four business segments delivered growth, translating into a 9% rise in adjusted earnings to $7.15 per share. Interestingly, quarterly earnings beat estimates consistently for over a decade. Net income attributable to the company, including special items, increased to $6 billion or $6.51 per share in Q3 from $5.8 billion or $6.24 per share in the prior-year quarter.

After losing about 7% in the past 30 days, UnitedHealth’s stock traded higher on Wednesday afternoon. The stock’s current price almost matches its value around three years ago.