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Stock Analyst Update

Strong Quarter, Cautious 2020 Outlook for UnitedHealth

UnitedHealth shows momentum, but we do not expect to change our fair value estimate for the wide-moat firm.

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Wide-moat-rated UnitedHealth Group (UNH) reported third-quarter results that beat consensus on the top and bottom lines. Positive trends continued in all major business lines, and the firm increased its adjusted earnings outlook for 2019 based on those trends. While we appreciate UnitedHealth's momentum, we do not expect to change our fair value estimate on the basis of these announcements.

During the quarter, revenue grew 7% year over year to $60.4 billion, operating profits grew 9% to $5.0 billion, and adjusted earnings per share grew 13% to $3.88. UnitedHealthcare, the leading U.S. health insurer, grew 5% year over year to $48.1 billion in revenue while operating profits grew 4% during the same period to $2.7 billion. This business continues to benefit from the expansion of Medicare Advantage plans, and the recent executive order bolstering that program may reinforce those positive trends. 

The Optum businesses delivered 13% consolidated revenue growth to $28.8 billion and operating profit growth of 16% to $2.4 billion. By business line, OptumHealth, which recently closed on the acquisition of DaVita Medical Group, increased revenue 34% to $8.1 billion. OptumInsight, the company's healthcare-focused information technology group, grew 16% year over year to $2.6 billion while its backlog grew 21% to $19.0 billion, which bodes well for future growth. OptumRx grew 6% to $18.5 billion, despite the ongoing transition of Cigna's business after the latter's acquisition of top-tier pharmacy benefit manager Express Scripts. 

With these strong trends, the firm now expects to generate adjusted EPS of $14.90-$15.00 in 2019, up about 16% year over year and up from its $14.40-$14.70 original guidance. The company plans to give 2020 expectations at its Dec. 3 analyst day. However, management expects its core earnings outlook to be on the low end of its typical 13%-16% growth goal and may be further influenced negatively by the reinstatement of the health insurance tax.

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Julie Utterback does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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