UnitedHealth Group is Thursday's IBD Stock Of The Day as the Dow Jones health care giant eyes another year of reliable double-digit earnings growth. Reported merger talks between rivals Cigna and Humana seemed to hit UNH on Wednesday as it released its 2024 outlook. But UNH stock rebounded strongly on Thursday, clearing a buy point.
"Looking to 2024 and beyond, we are confident our approach will meet our long-term outlook to grow earnings per share by 13% to 16%, delivering distinctive returns for our shareholders and greater value for consumers and the health system," CEO Andrew Witty said in an introduction of its investor conference handout.
UNH Earnings Outlook
UnitedHealth said it expects adjusted earnings per share of $27.50 to $28 in 2024. That's up from 2023 full-year guidance of $24.85 to $25. At the top of the range, that would amount to 12% growth. Though analysts noted that UNH guidance, which it sketched out with less detail in its third-quarter earnings report on Oct. 13, appeared conservative.
Cigna, Humana Look To Challenge UnitedHealth
The company's managed-care division, UnitedHealthcare, serves 52 million consumers in commercial and government programs, while its Optum services unit boasts about 130,000 physicians and clinicians. UNH's breadth and depth are unmatched. That is why Cigna and Humana are in formal talks to combine their largely nonoverlapping set of strengths to create a more formidable rival.
Managed-care industry analysts at Stephens noted in a Thursday report that a Cigna-Humana deal has long-term strategic merit. While it's likely to face a government challenge, Stephens expects it could be surmounted, though cinching the deal will likely require some Medicare Advantage and pharmacy-benefit-management concessions.
Value-Based Care
In its investor handbook, UnitedHealth highlighted value-based care, in which physicians are paid based on outcomes rather than based on the amount of care provided, as a top strategic priority. UNH said it has added 900,000 patients in such value-based-payment arrangements this year, bringing the total to more than 4 million.
Compared with Medicare fee-for-service, Optum patients in fully accountable Medicare Advantage (MA) plans are 14% less likely to have an avoidable emergency-room visit. They're also 44% less likely to be admitted to the hospital for complications associated with asthma or chronic obstructive pulmonary disease.
However, Jefferies analyst David Windley highlighted a few components of UNH guidance for 2024 that were "more cautionary than expected." That included a 100-basis-point increase in the medical loss ratio, which is the share of premiums needed to cover medical costs. Windley also flagged slower-than-expected MA member growth and slower OptumHealth revenue growth.
While there are offsets in higher OptumRx revenue and operating cost controls, the headwinds may prove more enduring, Windley wrote. He kept a hold rating and 500 price target.
UNH Stock
UNH stock advanced 3.4% to 552.97 in Thursday afternoon stock market action. That followed a 1% pullback on Wednesday, with shares finding support around the 50-day and 10-week lines.
UNH stock cleared a 546.78 buy point from a handle on a long consolidation that began in November 2022. But UnitedHealth has been in a range since April 2022.
UNH is part of IBD's Long-Term Leaders list composed of companies with the reliable earnings growth that make them a good candidate for buying on a pullback.
News of the Cigna-Humana deal hit the managed-care group Wednesday, with the prospective merger partners tumbling 8% and 5.5%, respectively. Yet as UNH and others bounced back Thursday, Cigna was flat and Humana was up 1%.
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