UnitedHealth Group Inc. (UNH - Analyst Report) reported second-quarter 2015 earnings of $1.64 per share, beating the Zacks Consensus Estimate of $1.57. Earnings soared 15.5% year over year.
UnitedHealth Group Inc. - Earnings Surprise | FindTheBest
The improvement came on the back of higher revenues. Strong results from Optum and UnitedHealthcare segments also contributed to the growth.
UnitedHealth posted revenues of $36.3 billion, up 11.3% year over year and surpassed the Zacks Consensus Estimate of $35.7 billion. The increase was backed by business expansion in both health care benefits and health care services.
The second-quarter consolidated medical care ratio decreased 20 basis points (bps) year over year to 81.4%.
Total operating cost came in at $33.4 billion, up 11.3% year over year, primarily due to higher medical and operating costs.
Segment Performance
During the reported quarter, UnitedHealth’s health benefits segment —UnitedHealthcare — witnessed revenue growth of 10% year over year to $33.1 billion. The increase was driven by strong organic growth in both commercial and government program markets. Earnings from operations came in at $2 billion, up 11% year over year.
Revenues from the company’s health services segment — Optum — improved 16.2% to $13.6 billion on a year-over-year basis. Earnings from operations jumped 18.7% year over year to $864 million. Continued progress on Optum’s plan to accelerate growth, and improve margins and productivity by strengthening integration and business alignment led to the improvement.
Membership Enrollment
UnitedHealth ended the quarter with medical membership of 45.860 million compared with 44.935 million a year ago.
Capital Position
Second-quarter cash flows from operations grew to $1.2 billion, up 15% year over year. The balance sheet remained strong, with debt-to-total capital ratio of 35.4% as of Jun 30, 2015, down 120 bps sequentially.
Share Repurchases and Dividend
UnitedHealth Group spent $57 million in share buyback in the quarter. Also, the company hiked the quarterly dividend payout by 33% to 50 cents per share.
Guidance Upped
The insurer expects 2015 revenues of approximately $154 billion, up $11 billion from the previous outlook, backed by stronger business growth in the second quarter. Earnings are now expected in the range of $6.25 to $6.35 per share, up from $6.15 to $6.30. The company projects 2015 cash flows from operations of $8.4 billion to $8.6 billion, an increase of $200 million from the previous guidance.
Our Take
UnitedHealth’s results reflect consistent gains from strong growth in the Optum segment. Expanding business on public exchange markets and continued growth in international business are the other catalysts.
UnitedHealth’s increased participation in the health insurance exchange is a positive in our view, as it will boost its membership. A strong balance sheet and a niche market position are some of the other positives.
UnitedHealth carries a Zacks Rank #2 (Buy). Another stock worth a look is Select Medical Holdings Corporation (SEM - Snapshot Report) which sports a Zacks Rank #1 (Strong Buy).
Other Stocks to Consider
We expect a positive earnings surprise from Anthem Inc. (ANTM - Analyst Report) which also has a Zacks Rank #1 and an Earnings ESP of +1.87%. The Zacks Consensus Estimate for the second quarter stands at $2.68 per share. The company will announce the results before the opening bell on Jul 29.
Centene Corp. (CNC - Snapshot Report) has a Zacks Rank #1 and an Earnings ESP of +1.45%. The Zacks Consensus Estimate for the second quarter stands at 69 cents per share. The company will announce the results before the market opens on Jul 28.
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