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Will UnitedHealth's (UNH) Revenue Growth Aid Q3 Earnings?

Zacks Equity Research
Updated

We expect consolidated revenues to grow at UnitedHealth Group Inc. UNH and aid its third-quarter earnings, scheduled to release on Oct 16, 2018, before the opening bell.

 

Revenue growth at both UnitedHealthcare and Optum segments is expected to aid the company’s third-quarter earnings results, offset by increased expenses due to additional investments and operating costs.

 

Factors to Affect Q3 Results

 

For the company’s UnitedHealthcare segment, we expect revenue growth from its Medicare and Retirement sub-segments on the back of higher individual product sales and employer-sponsored group retiree plans. The Zacks Consensus Estimate for the segment’s revenues is $44.6 billion, which translates into year-over-year growth of 12.7%.

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We expect Optum, the company’s health service business, to be a significant contributor to its earnings. Optum’s sub-segment Optum Health’s earnings are anticipated to be driven by growth in care delivery, and behavioral, digital consumer engagement and health financial services; while its sub-segment OptumInsight’s revenues are expected to be driven by an expansion in payer technology and services, and care provider advisory services. The Zacks Consensus Estimate for revenues from this segment is $25.6 billion, up 11.7% year over year.

 

The company’s membership growth is anticipated to be driven by higher Medicaid and Medicare Advantage enrollments. In the commercial group market, we expect membership gains in services to small groups, which should drive membership in risk-based benefit plans.

 

However, UnitedHealth is expected to incur additional investment and operating costs in order to accelerate existing initiatives along with artificial intelligence, data analytics, individual health record custodianship, digital health, net promoter score improvements and health-related initiatives in local communities. These accelerated investments will lead to incremental operating expenses of $200-$300 million for 2018. Part of these spending was borne by the company in the second quarter, which might increase its operating expenses.

 

The bottom line is expected to be cushioned by shares bought back in the second quarter.

 

Earnings Surprise History

 

The company has an attractive earnings surprise history, having surpassed estimates in the trailing four quarters, with an average positive surprise of 3.71%. This is depicted in the chart below:

 

UnitedHealth Group Incorporated Price and EPS Surprise

 

UnitedHealth Group Incorporated Price and EPS Surprise | UnitedHealth Group Incorporated Quote

Why a Positive Surprise Likely?

 

Our proven model indicates that chances of UnitedHealth beating the Zacks Consensus Estimate are high as it has the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

 

Zacks ESP: The Earnings ESP for UnitedHealth is +0.73%.

 

Zacks Rank: UnitedHealth currently has a Zacks Rank #2 (Buy), which increases the predictive power of ESP.

 

Other Stocks That Warrant a Look

 

Here are some other companies that you may consider as our model shows that these, too, have the right combination of elements to post an earnings beat this quarter:

 

Molina Healthcare, Inc. MOH has an Earnings ESP of +4.39% and a Zacks Rank #3 (Hold). The company is expected to report third-quarter earnings results on Oct 31. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Aetna Inc. AET has an Earnings ESP of +0.53% and a Zacks Rank #3. The company is expected to report third-quarter earnings results on Oct 30.

 

Tenet Healthcare Corporation THC has an Earnings ESP of +7.6% and a Zacks Rank #3. The company is expected to report third-quarter earnings results on Nov 5.

 

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UnitedHealth Group Incorporated (UNH) : Free Stock Analysis Report
 
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