UnitedHealth Group, the Dow Jones health care giant, comfortably topped fourth-quarter estimates early Friday but said medical costs as a share of premiums ran above analyst expectations. UNH stock, a laggard in this rally, like most of its defensive-oriented industry group, fell in early stock market action.
UnitedHealth Earnings
Estimates: Analysts expect fourth-quarter UnitedHealth earnings per share of $5.98, up 12% from a year earlier, according to FactSet. Revenue should grow 11% to $92.1 billion. The medical cost ratio is expected to rise to 84.1 from 82.8 a year ago. That ratio represents the percentage of premiums spent to cover members' health needs.
Results: EPS grew 15.4% to $6.16 per share, beating the consensus by 16 cents. Revenue grew 14.1% to $94.4 billion, also comfortably ahead of estimates.
However, the medical cost ratio jumped to 85 in Q4. UnitedHealth cited ongoing factors, including "outpatient care, primarily serving seniors, and business mix," with coverage in government programs tending toward higher costs vs. commercial coverage.
Outlook: UnitedHealth stuck by guidance issues ahead of its Nov. 29 investor day for full-year EPS of $27.50 to $28.
'Pressure On '24 Pricing'
UnitedHealth said it recognized a $100 million unfavorable development in medical reserves in Q4, leaving a net positive development of $840 million for the full year. The shift in trend "was the first negative revision since 4Q16," Jefferies analyst David Windley wrote.
Along with the unexpectedly high medical cost ratio, the detail in UnitedHealth's report "conveys more pressure on '24 pricing that previously understood."
So how did UNH earnings beat? Windley said that net interest income and the tax rate added 52 cents to EPS vs. the consensus. Windley reiterated his hold rating on UNH stock.
UNH Stock
UNH stock slumped 3.4% to 521.51 in Friday stock market action, tumbling below its 50-day and 10-week moving averages. Intraday, shares hit a three-month low.
UnitedHealth stock has an 558.10 buy point from a consolidation that stretches back to November 2022. Actually, UnitedHealth has essentially moved sideways since April 2022.
The relative strength line, which tracks a stock's performance vs. the S&P 500 index, has been falling since November 2022.
UNH stock belongs to the IBD Long Term Leaders list due to its track record of reliable double-digit earnings growth and, historically, a record of share-price outperformance. Eventually, that growth is bound to be rewarded, but investors shouldn't go bargain-hunting on a fall below the 50-day moving average.
Be sure to read IBD's The Big Picture column after each trading day to get the latest on the prevailing stock market trend and what it means for your trading decisions.
