Earnings preview: UnitedHealth bets on Medicare plans, Optum biz to drive Q2 growth

Health insurance giant UnitedHealth (NYSE: UNH) will be announcing its second-quarter financial results Thursday before the opening bell. While the robust subscriber base of Medicare Advantage continues to be the main growth driver, the results will also benefit from the fast-growing Optum health services business. The ongoing cost-cutting efforts will likely contribute to the bottom line.

Estimates

It is widely expected that the Minnetonka, Minnesota-based company will report adjusted earnings of $3.45 per share for the June quarter on revenues of $60.59 billion, up 10% and 8% respectively. There is a high level of optimism in the market about the upcoming report, considering the company’s impressive track record of giving positive earnings surprises. It shows the stock might gather momentum after the announcement.

Past Performance

In the first quarter, the company’s revenues moved up 9% annually to $60.3 billion, supported by strong growth in the Medicare & Retirement segment. A 12% increase in the revenues of the Optum subsidiary also contributed. Consequently, first-quarter earnings climbed 22% annually to $3.73 per share.

The general uptick in membership growth has been gathering steam as the company continues to expand its global footprint. Meanwhile, the improvement in the top-line performance will be partially offset by higher operating expenses and investments in technology and innovation, including data analysts and artificial intelligence.

The general uptick in membership growth has been gathering steam as the company continues to expand its global footprint

Last month, UnitedHealth completed the acquisition of DaVita Medical for about $5 billion. Synergies from the buyout, in the final weeks of the second quarter, are expected to be accretive to second-quarter earnings.

Outlook

Going forward, health insurers are poised to take advantage of the government’s recent decision to withdraw the plan to do away with rebates in various drug plans. Following the announcement, shares of the leading medical insurance firms rallied last week, paring the losses suffered earlier this year. The revised proposal is expected to give a boost to UnitedHealth’s Optum business.

Related: UnitedHealth Q1 2019 Earnings Call Transcript

Cigna (CI), the company’s main competitor, is scheduled to publish the second-quarter results on August 1, before the opening bell. In the first quarter, Cigna’s revenues more than doubled to $38 billion.

UnitedHealth shares plunged to a one-year low in April and have been on the recovery path since then. Having gained 9% so far this year, the stock is currently hovering near the record highs seen six months ago.

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