UnitedHealth Reports Strong Second Quarter
We are not making any changes to our 2020 outlook and fair value estimate for the narrow-moat company.
Narrow-moat UnitedHealth Group (UNH) reported strong second-quarter operating results that included an earnings beat on delayed elective procedures and routine care related to the COVID-19 crisis. Despite that bottom-line strength, management maintained its guidance for 2020, which reflects the potential for some delayed care to work its way back into the system as well as extra potential costs associated with efforts to contain the pandemic. Overall, UnitedHealth's results and outlook remain solid, and our fair value estimate is unchanged.
UnitedHealth significantly beat Capital IQ consensus on the bottom line but missed on the top line. Adjusted earnings per share were $7.12, nearly double the year-ago quarter and well above consensus of $5.24. This beat related to the significantly lower medical utilization costs related to the COVID-19-related shutdown during the period. Management continues to expect adjusted EPS of $16.25-$16.55 for the year, though, as some of those costs will work their way back into the system by the end of the year. The company also estimates that it will make rebate payments to clients of about $1 billion this year in addition to its ongoing customer/consumer relief ($1.5 billion) and caregiver assistance ($2 billion) programs.
A weak top line could hamper profitability eventually. During the quarter, the company turned in only $62.1 billion of revenue compared with consensus of $63.5 billion. The insurance operations grew only 1% year over year, as the employer and individual division declined 8% year over year related to the massive layoffs that resulted in a 2% decline in commercial members year over year. The company's government-sponsored plans helped offset the employment-sensitive operations, but only mildly. This dynamic may constrain the company's results if layoffs are sustained in the near term. However, we expect UnitedHealth's longer-term growth trajectory to remain intact.
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Julie Utterback does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.