What You Need to Know Ahead of UnitedHealth's Earnings


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UnitedHealth Group's (NYSE: UNH) membership is set to climb in the wake of reform driven enrollment through healthcare exchanges and thanks to Medicaid reform.
However, investors are right to wonder whether UnitedHealth's second quarter results will demonstrate that serving millions of new customers due to the Affordable Care Act is profit-friendly. In the following slideshow, you'll see what drove UnitedHealth's first quarter and what you should be looking for when UnitedHealth reports earnings on July 17th.

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What You Need to Know Ahead of UnitedHealth's Earnings

  1. 1. Here’s What You Need To Know Ahead of UnitedHealth Group’s Earnings Report
  2. 2. UnitedHealth Group’s growth • UnitedHealth’s Medicaid business is growing quickly. – UnitedHealth’s Medicaid sales rose 17% year-over-year in Q1. • $5.2 billion in revenue. • Medicaid membership increased 255,000 in the first quarter. Driving UnitedHealth’s success:
  3. 3. UnitedHealth Group’s growth – Employer & Individual sales fell $103 million in Q1. • $11 billion in revenue. • 345,000 fewer members served due to both a focus on disciplined pricing and competition. – Will reform driven enrollment reverse this trend in Q2? Driving UnitedHealth’s success: • Exchange enrollment could move the needle this quarter.
  4. 4. UnitedHealth Group’s growth continued • Aging America continues to support Medicare membership. – UnitedHealth’s Medicare & retirement segment sales rose 3% to $11.5 billion in Q1. • Medicare Advantage enrollment up 120,000 members in the quarter versus a year ago. • Medicare Supplement membership up 300,000 people year-over-year in Q1. • Medicare Part D enrollment up 435,000 people from a year ago in the quarter. Driving UnitedHealth’s success:
  5. 5. UnitedHealth Group’s growth continued • Regulation and innovation drive Optum revenue. – Optum sales increased 29% year-over-year. • OptumHealth sales up 6% as employers embrace consumer driven health programs. • OptumInsight sales up 8% as payers and providers embrace analytics to ex-out costs. • OptumRX sales up 44% as payers look to leverage purchasing power for lower drug costs. Driving UnitedHealth’s success:
  6. 6. UnitedHealth’s revenue • Reform is boosting enrollment and focusing UnitedHealth on establishing pricing power. • Commercial and individual sales were roughly flat (membership losses offset by pricing). – Growth in Medicare, Medicaid, and at Optum supported top line sales. – Investors should see membership growth return in Q2; if not, Medicaid enrollment will need to do the heavy lifting yet again. First, let’s consider UnitedHealth’s revenue sources
  7. 7. Commercial & Individual Membership in commercial and individual plans dropped in the first quarter. • Markets are increasingly competitive. • UnitedHealth is focusing more on pricing than market share. • Membership fell from 30.1 million people in Q4 to 29.1 million people in Q1. Commercial operating margin fell from 5.7% last year to 4.8% in the first quarter. • Will margin continue to contract as exchange enrollment jumps? • Was exchange pricing high enough to offset early adopters with pre-existing conditions? • Did enough young people enroll to offset that higher cost of care? The medical benefit ratio, which measures the cost of care relative to premiums collected, was 1% better year-over-year in Q1, coming in at 77.3%. • Can that continue in the face of newly launched high priced drugs like Gilead’s Sovaldi?
  8. 8. Medicare & Medicaid Membership in Medicare programs climbed in the past year. • Trends suggest demand for Medicare products will remain solid. • 10,000 baby boomers turn 65 every day. The cost of healthcare is increasing. • The number of prescription drugs filled and procedures increases with age. • New medicines are turning life threatening disease into chronic disease • Longer treatment periods. • Rehab, assisted living, home health, and hospice care costs remain a challenge. Nationally, Medicaid enrollment grew by 6 million members, including 3 million signing up thanks to reform being adopted in 26 states. • UnitedHealth collects a payment from states based on the number of members. • The cost of caring for Medicaid patients is higher than commercial members. • Will Medicaid margin continue to prop up results in the face of higher drug prices?
  9. 9. Earnings outlook UnitedHealth has beat analyst expectations in three of the past four quarters. Earnings estimates for the second quarter have dropped from $1.33 to $1.26 per share over the past 90 days. EPS estimates for the full year have fallen from $5.59 to $5.52. Watch to see if UnitedHealth offers new guidance.  Currently, the company expects $5.40 to $5.60 per share this year.
  10. 10. Fool-worthy thoughts •UnitedHealth is a proxy for the industry. •Investors should pay attention to:  Commercial enrollment figures.  Medical care ratio.  Impacts from Medicaid expansion. •A good quarter should bode well for competitors WellPoint and Aetna. •UnitedHealth’s low cash dividend payout ratio (below 20%) and a 1.8% yield remain attractive.  If UnitedHealth increases guidance, it would support future dividend increases.
  11. 11. .Smart investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. Our FREE report on top dividend stocks