How the New Tax Law Boosted UnitedHealth Earnings and Forecast

UnitedHealth Group Inc. (NYSE: UNH) reported fourth-quarter and full-year 2017 results before markets opened Tuesday. The health insurance and benefits management firm posted adjusted diluted quarterly earnings per share (EPS) of $2.59 on revenues of $52.1 billion. In the same period a year ago, UnitedHealth reported EPS of $2.11 on revenues of $47.5 billion. Fourth-quarter results also compare to the consensus estimates for EPS of $2.52 on revenues of $51.51 billion.

For the full year, UnitedHealth reported revenues of $201.2 billion and adjusted EPS of $10.07, compared with 2016 revenues of $184.8 billion and adjusted EPS of $8.05. Analysts had forecast EPS of $10.00 and revenues of $200.62 billion.

The company benefited from a one-time noncash benefit of $1.22 per share related to a revaluation of its net tax-deferred liability as a result of the new tax law. The benefit, along with other adjustments, were excluded from the calculation of adjusted EPS for both the quarter and the full year.

UnitedHealth said it revised its 2018 financial outlook to reflect the effects of the U.S. corporate tax law changes on both a GAAP and non-GAAP basis. UnitedHealth raised its estimate for adjusted EPS from a prior in a range of $10.55 to $10.85 per share to a new range of $12.30 to $12.60 per share. Analysts’ consensus forecast called for full-year adjusted EPS of $11.47 and revenues of $223.76 billion. UnitedHealth also forecast cash flow from operations in a range of $15.0 billion to $15.5 billion.

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The company paid $2.8 billion in dividends in 2017 and repurchased 8.6 million shares of common stock for a total of $1.5 billion.

Revenues from the company’s health care division rose 9.8% year over year in the fourth quarter to $41.6 billion, and revenues at its Optum benefits management division rose 9.9% to $24.4 billion. Operating margin in the health care division was 4.2%, and in the Optum division margins came in at 9.1%.

Total enrollment numbers increased year over year from 49.05 million to 48.59 million. Commercial enrollments declined slightly from 30.58 million to 29.87 million. Medicare and Medicaid enrollment rose from 13.79 million to 15.58 million, and international enrollment decreased from 4.22 million to 4.08 million.

As we noted in our preview of UnitedHealth’s results, the company’s median effective tax rate for the past five quarters was 40%. A Morgan Stanley analyst estimated that the new tax law could add $1.80 per share to UnitedHealth’s 2018 profits. That estimate turns out to have been very close to the company’s own forecast. Now recall that UnitedHealth has a string of nine consecutive quarters in which it has beaten both revenue and earnings estimates.

Shares closed up about 1.4% on Friday, at $228.64 in a 52-week range of $156.09 to $231.77. The stock traded up nearly 3% at $235.00 in Tuesday’s premarket session. The consensus 12-month price target was $252.57 before results were announced.

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