UnitedHealth Group beat third-quarter earnings forecasts but lowered the top range of its full-year outlook and reined in expectations for 2025 amid challenges with Medicare Advantage utilization and state Medicaid reimbursements. UNH stock dived in Tuesday stock market action, weighing on the Dow Jones Industrial Average.
During the earnings call, UNH stock took another big step down after UnitedHealth CEO Andrew Witty disappointed investors with an early preview for 2025 earnings. He pegged the top of the outlook range for UnitedHealth earnings around $30 per share, nearly 4% below the current consensus estimate.
UnitedHealth Earnings
Estimates: Analysts expected UnitedHealth earnings per share of $7, up 6.7% vs. Q3 2023. Revenue was seen rising 7.3% to $98.14 billion, according to the FactSet consensus. Forecasts for the medical cost ratio, or spending on medical care as a percentage of premiums, called for a rise to 84.4% from 82.3% a year ago, partly related to higher utilization of care by Medicare Advantage members.
Results: Adjusted Q3 EPS rose 9% to $7.15 a share. Revenue grew 9.2% to $100.82 billion. The medical cost ratio came in on the high side at 85.2%. UNH said the increase included previously noted Medicare funding reductions. Other factors included medical reserve developments and trends related to membership and utilization.
UnitedHealth said the revenue beat was powered by "strong expansion in people served at Optum and UnitedHealthcare," its services and managed care divisions. Optum provided just under $4.5 billion of $8.7 billion in earnings, exceeding the $4.2 billion contribution from managed care.
Jefferies analyst David Windley wrote in an early morning note that UnitedHealth earnings failed to deliver EPS upside in a "high-quality way." The beat came from a lower tax rate and higher net interest income, as well as lower operating expense.
Outlook: UNH narrowed its prior outlook for full-year EPS of $27.50 to $28, bringing down the top end to $27.75. The change includes an additional 10 cents per share in Change Healthcare hack-related costs.
The $27.63 midpoint of the new range is only slightly below the $27.69 consensus ahead of earnings. However, UnitedHealth's $30 outlook for the upper end of its EPS range for 2025 is well below the $31.17 pre-earnings consensus, according to FactSet.
What's Ailing UnitedHealth Group?
Lately, analysts have focused on the outlook for Medicare Advantage. After a surge in utilization among seniors in the government program, UnitedHealth, like most other participants, scaled back the generosity of its plans for 2025, putting profitability ahead of growth.
However, another issue came to the fore in the UnitedHealth earnings call, an issue that had whacked UNH stock in May: Medicaid. The problem is that payments for state Medicaid contracts don't yet reflect the worse health, or higher acuity, of the remaining beneficiaries.
The issue relates to the Medicaid redeterminations that began in early 2023 and culled millions from Medicaid rolls. Many of those had gotten coverage after losing their jobs at the start of the pandemic, but no longer qualify based on income limits. Those millions who left Medicaid seem to have been in better-than-average health.
UnitedHealth Stock
UnitedHealth, a Dow Jones member, tumbled 7.5% to 560.59 in Tuesday afternoon stock market action. That follows Monday's 1.2% rise to 605.40, which had left UNH stock just below a 607.94 buy point from a flat base. Tuesday's let-down reinforces the risk in buying just ahead of earnings. UnitedHealth stock gapped below its 50-day line Tuesday.
The 45.46-point loss for UNH stock equates to 299 points for the Dow Jones Industrial Average.
Other managed care stocks also slid amid the focus on UNH earnings. Medicare Advantage-focused Humana lost 2.6%. Centene, a big participant in Medicaid managed care, fell 5.1%. Elevance Health slipped 4.4%.
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