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UnitedHealth Earnings: Strong Results Boost Bottom-End of 2023 Outlook, Setting Stage for Solid 2024

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Narrow-moat UnitedHealth UNH turned in a strong third quarter, and management slightly increased the bottom-end of its 2023 adjusted EPS guidance range based these trends. Our 2023 expectation remains at the top of that new range, and we do not currently intend to change our $462 fair value estimate. Shares look a little rich to us, especially compared with managed care peers that have similar growth prospects.

During the quarter, UnitedHealth reported strong operating results on both the top and bottom lines, including 14% revenue, 14% operating income, and 13% adjusted EPS growth year over year. Bottom-line results were led by medical insurance, with 21% operating profit growth while the Optum franchises trailed with just 7% operating profit growth. In medical insurance, medical membership grew 3% year over year, despite constraints in Medicaid from resumed redetermination activities. Also, top-line growth at the Optum franchises looked robust at 22% year over year, led by the Optum Health caregiving business that turned in 29% revenue growth on just low-single-digit increase in consumers, as more patients were served under value-based arrangements and more services were rendered per patient. However, Optum Health margins remained depressed due to higher medical utilization and increased investment activities made to support its recent strong growth.

With another good quarter in the books, management mildly raised the bottom end of its 2023 guidance range by $0.15 to $24.85-$25.00 (12%-13% growth). Our expectations remain near the top of that range. Also, management gave a first look at its expected 2024 guidance, suggesting that the higher end of its initial outlook range will likely be around consensus. For investors who have been worried about 2024 industry guidance, we suspect those comments were comforting. Notably, we do not plan to materially change our 2024 view, which is a bit above consensus, given United’s tendency to outperform its initial outlook.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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Julie Utterback

Senior Equity Analyst
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Julie Utterback is a senior equity analyst for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. Within the healthcare industry, she covers medical technology and service companies. She is also the chairperson of the equity research team’s capital allocation methodology.

Utterback joined Morningstar in 2005 as an equity analyst in the healthcare industry. At that time, she covered medical technology companies, including orthopedic device, medical equipment, and cardiac device firms. In 2010, she joined Morningstar's credit research team, initiating coverage of the entire healthcare industry and generally helping the organization expand and maintain its credit coverage across many industries. She held that senior credit analyst role until April 2019, when she returned to the equity team to cover medical technology and service companies.

Prior to joining Morningstar, Utterback was an equity analyst at State Farm Insurance for several years. She holds a bachelor's degree in finance from the University of Illinois Urbana-Champaign. She also holds the Chartered Financial Analyst® designation.

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