UnitedHealth Reports 3Q Profit Beat Led By Optum Growth

UnitedHealth beat quarterly profit expectations as the US healthcare giant saw continued growth, led by its Optum unit, while underlying business performance remained strong. Shares are up 1.1% in Wednesday’s pre-market trading session.

UnitedHealth (UNH) said adjusted earnings of $3.51 per share in the third quarter dropped 10% year-on-year, but exceeded analysts’ estimates of $3.09 per share. Revenues for the quarter grew 8% to $65.1 billion year-on-year, beating the Street consensus by $1.15 billion. The company noted that total sales were driven by a 21% increase in revenue from its Optum unit, which manages drug benefits and offers healthcare data analytics services.

The third quarter medical care ratio (MCR) – percentage of premiums paid out for medical service – stood at 81.9% compared to 82.4% last year. Analysts were expecting a loss ratio of 83.55%.

UnitedHealth said its year-to-date return on equity of 28.9% reflects continued strong operating performance and the temporary impact of care deferrals earlier in the year.

Looking ahead, the company expects “future periods will reflect the resumption of more typical care patterns and continued COVID-19 treatment and testing costs, against the continued backdrop of an uncertain economic recovery”.

On the back of third-quarter results, UnitedHealth raised its full year earnings per share outlook for 2020 to $15.65 to $15.90 per share from $15.45-15.75. The company now expects 2020 adjusted net earnings of $16.50 to $16.75 per share compared with $16.25-16.55 per share previously.

Shares in UNH have climbed 13% year-to-date, and the stock has a bullish Strong Buy analyst consensus. That’s with an average analyst price target of $350.32 (5.7% upside potential).

Oppenheimer analyst analyst Michael Wiederhorn reiterated a Buy rating on the stock with a $353 price target, saying that the company’s Optum business is a nice complement to its core managed care operations and continues to account for a large share of earnings.

“Given the pandemic and large consumer assistance measures, there were a number of moving parts this quarter, but UnitedHealthcare drove the beat, driven by the MCR of 81.9% as the decline in utilization more than offset the impact from financial assistance,” Wiederhorn wrote in a note to investors. (See UnitedHealth stock analysis on TipRanks).

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