Wedbush Reiterates Outperform On Unitedhealth Following 3Q14 Results

In a research report issued today, Wedbush analyst Sarah James reiterated an Outperform rating on Unitedhealth Group (NYSE:UNH) with a $100 price target, following the release of the company’s third-quarter earnings, which surpassed the street consensus with an EPS of $1.63.

James wrote, “MLR was 79.7% as reported, or 80.1% excluding development of $120M, 50bps below consensus of 80.2% and 12bps below our estimate. Prior period development was down from $180M in 3Q13 and $170M in 3Q12. SG&A increased 62bps sequentially to 16.3%, the y/y increase was driven by 120bps in ACA fees and a 15bps increase from business mix which more than offset 65bps in productivity gains. Revenue of $32.8B was $29M above consensus of $32.7B. UHC enrollment increased 215K sequentially with losses of 65K on commercial risk and 30K on commercial ASO offset by 250K Medicaid, 25K MA, 5K PDP, and 50K Medicare supplement membership growth. We are starting to see the benefit of UNH re-pricing their international group as revenue grew 19% to $1.8B despite enrollment reductions. Operating cash flows of $3.2B were 2x net income. Days claims payable were flat y/y at 49, up one sequentially. The company purchased 13M shares during the quarter for $1B bringing year to date repurchases to 38M shares for $3B. United has $1B in free cash at the parent.”

The analyst continued, “With a new external sales force in place and initiatives to grow external business, Optum Insight has shown a 21% increase in external revenue. Total Optum Insight revenue of $1.25B is up 4% y/y. Optum margins improved to 7.2% from 6.9% in 3Q13 with a 90bps improvement to 4.1% in Optum Rx driving the segment increase. OptumRx revenue of $8B was up 27% y/y and Optumhealth was up 14% to $2.8B.” The analyst added, “United continues to build their best-in-class platform for provider-related services, adding MedSynergies which provides physician practice management, revenue management, and other services to 9.3K providers. This will allow Optum to build upon their revenue cycle management practice geared towards hospitals and create a single source across the care system, which helps them track sophisticated integrated health systems like Catholic Health Initiative and Texas Health Resources.”

According to, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Sarah James has a total average return of 11% and a 65% success rate. James has a 4.6% average return when recommending UNH, and is ranked #601 out of 3352 analysts.

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