UnitedHealth Earnings Beat — With An Asterisk

UnitedHealth Group (UNH) easily topped first-quarter earnings early Tuesday as it kicked off reporting season for the managed care group. Investors gave an initial thumbs up, pushing UNH stock higher, though the results exclude the bulk of costs the company incurred to shore up operations and support affected medical care providers after the cyberattack on its Change Healthcare unit.


The attack disrupted bill processing, causing cash flow problems for providers, and left patients unable to get approval for medical procedures and prescriptions. UnitedHealth said it advanced more than $6 billion in funding and interest-free loans to providers.

UnitedHealth Earnings

Estimates: UnitedHealth was expected to post Q1 adjusted earnings per share of $6.61, up 5.6% from a year ago, according to the FactSet consensus. Revenue was seen up 8% to $99.2 billion.

Analysts expected UnitedHealth’s medical cost ratio to rise to 83.8% from 82.2% a year ago, reflecting a higher percentage of premiums paid out as benefits amid increased Medicare Advantage utilization.

Results: Adjusted EPS rose 10.4% to $6.91, as revenue grew 8.6% to $99.796 billion.

UNH said its response to the cyberattack totaled 74 cents per share in Q1. Of that, UNH said it subtracted 25 cents from adjusted EPS, reflecting lost revenue and increased operating costs for Change Healthcare. The other 49 cents were related to restoring the Change Healthcare platform and increased medical expenditures “as the company suspended some care management activities to help care providers” get around issues caused by the cyberattack.

Those increased expenditures lifted UNH’s medical cost ratio by 40 basis points to 84.3%, implying an 83.9% ratio excluding Change Healthcare issues.

Outlook: UNH said it expects a full-year impact from the cyberattack of $1.15 to $1.35 per share. Still, the company affirmed its adjusted EPS outlook of $27.50 to $28.

Key Questions For UNH

Medicare Advantage “utilization commentary should drive price action,” Jefferies analyst David Windley wrote in a Friday note.

However, Windley noted that there are multiple concerns casting some doubt on the ability of UnitedHealth to achieve its long-term annual earnings growth target of 13% to 16%.

Earlier this month, the Biden administration finalized Medicare Advantage payment rates for 2025 that were less generous than hoped for. Windley expects managed care players to react to pinched margins by scaling back extra benefits, but that will likely reduce membership growth.

Windley also sees potentially slower growth for UnitedHealth’s Optum services division. About one-third of Optum’s growth has come from acquisitions, Windley says. But he thinks the pace of deals may slow amid a Department of Justice investigation into the the relationship between UNH’s UnitedHealthcare managed care division and its Optum unit.

UNH, Managed Care Stocks

UNH stock rose 6.6% to 475 in early Tuesday stock market action. That followed a 1.5% gain on Monday as the S&P 500 struggled. Still, UNH closed 20% below its 52-week high on Monday.

Centene (CNC) and Molina Healthcare (MOH) were big movers Monday as investors reacted to Medicaid contract news.

Late Friday, Florida announced five winners of six-year Medicaid managed care contracts, including Centene’s Sunshine State Health Plan. Humana (HUM) was also among the winners.

In Monday research notes, Wells Fargo analyst Stephen Baxter called the decision especially positive for Centene following recent disappointments in contract bids. He hiked his price target for Centene to 93 from 89, keeping an outperform rating.

Wells Fargo cut its price target for Molina to 410 from 440, saying that Florida’s decision dealt a setback to expectations of market-share gains.

Florida serves 3.45 million people through Medicaid managed care plans.

CNC stock rose 2.8% in Monday stock market action and Humana 0.7%, while MOH slid 4.2%.


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