UnitedHealth's stock suffers biggest drop in 7 months as costs disappoint

By Tomi Kilgore

Medical cost ratio rises more than 2 percentage points to 85%, well above expectations

Shares of UnitedHealth Group Inc. took a dive Friday, after the health insurer reported a big jump in medical costs relative to revenue in the fourth quarter, but also earnings that continued to beat forecasts.

The stock's (UNH) selloff had an outsized negative impact on the price-weighted Dow Jones Industrial Average DJIA, given its relatively high price.

The medical care ratio, or the ratio of medical costs to premium revenue, rose to 85% from 82.8% in the same period a year ago. That was well above the FactSet consensus of 84.1%. That's the seventh time the MCR was above expectations in the past 10 quarters.

At the company's investor conference in late-November, Chief Executive Andrew Witty said the rate notice on Medicare Advantage earlier in 2023, which was essentially a price cut, would have a significant impact on its MA portfolio.

The stock, which has by far the highest price among the 30 Dow components, dropped 5.7% in premarket trading. That puts it on track for the biggest one-day decline in seven months.

The implied stock-price decline would shave about 202 points off the Dow's price, while Dow futures (YM00) fell 155 points, or 0.4%, ahead of the open at 9:30 a.m. Eastern.

Net income rose to $5.46 billion, or $5.83 a share, from $4.76 billion, or $5.03 a share, in the same period a year ago.

Excluding nonrecurring items, adjusted earnings per share of $6.16 beat the FactSet consensus of $5.98. The company has beat EPS expectations for at least the past 20 quarters.

Revenue grew 14.1% to $94.43 billion, well above the FactSet consensus of $92.13 billion, as UnitedHealthcare revenue rose 12.4% to $70.8 billion and Optum revenue increased 24.2% to $59.5 billion.

Premiums revenue were up 13.2% to $73.23 billion, products revenue rose 20.4% to $11.31 billion and services revenue increased 11% to $8.71 billion.

For 2024, the company reiterated its guidance range for adjusted EPS of $27.50 to $28.00 and for revenue of $400 billion. The company said, however, that the earnings outlook will be impacted when the sale of its Brazil operations closes in the first half of 2024.

The stock has edged up 2.7% over the past three months through Thursday, while the Health Care Select Sector SPDR ETF (XLV) has rallied 8.9% and the Dow has run up 12.1%.

-Tomi Kilgore

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01-12-24 0755ET

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