Health and Healthcare

What to Expect From UnitedHealth Group Earnings

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Before the opening bell Tuesday, Dow Jones Industrial Average component UnitedHealth Group Inc. (NYSE: UNH) is expected to report another solid quarter. After all, the company has beat analysts’ earnings estimate for eight straight quarters and revenues in six of those eight.

The consensus estimate for fourth-quarter earnings per share (EPS) is $2.52, with revenues coming in at $51.51 billion. For the full year, revenues have been forecast at $200.62 billion with EPS of $10.00. The full-year revenue estimate is more than 8.5% higher than 2016 revenues and the full-year EPS estimate is nearly 25% higher.

For the quarter, the EPS estimate is 19% higher than the year-ago quarter, and the sales estimate is 8.4% higher.

The health care sector as a whole rose by 20% last year, and UnitedHealth posted a gain of 37.8% for the year, nearly double the sector as a whole, good enough to rank eighth among the Dow 30.

In late December, Credit Suisse reiterated its Outperform rating on the stock following UnitedHealth’s announcement that it would buy Empresas Banmédica, a leading health care provider and insurer serving Chile, Colombia and Peru. The $2.8 billion deal is said to be a testament that UnitedHealth will continue to use its strong balance sheet to be an opportunistic acquirer.

The new tax law is a mixed bag for insurance providers like UnitedHealth. The elimination of the individual mandate included in the Affordable Care Act (aka, Obamacare) means that as many as 13 million currently insured Americans will lose coverage. That means premiums will rise for those who are covered. Possible cuts to Medicare could also hurt providers. These downsides will be offset by the creation of health savings accounts and, more important, the ability of insurers to sell products across state lines.

Then of course there is the corporate tax rate cut from 35% to 21%. According to an October report at MarketWatch, UnitedHealth’s median effective tax rate for the past five quarters was 40%. One estimate, from Morgan Stanley, figures that the new tax law could add $1.80 per share to UnitedHealth’s 2018 profits. We’ll see what the company thinks is going to happen when it provides guidance.

UnitedHealth’s stock closed at $228.64 on Friday, up 1.4% for the day, in a 52-week range of $156.09 to $231.77. The 12-month consensus price target is $252.57.

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