What trends will define UnitedHealth’s third quarter?

UnitedHealth Group (NYSE:UNH) is expected to report its second quarter 2024 results on Tuesday, October 15th. We expect UnitedHealth to report revenue of $99 billion and earnings of $6.95 per share on an adjusted basis, slightly below expectations. The company is expected to continue to benefit from increased contribution from its Optum Health business, while its health insurance business is expected to benefit from increased membership. However, the most important metric to pay attention to is medical costs, which have been rising recently. Not only do we expect UnitedHealth to have a poor quarter, we also expect the stock to be fully valued at $590. Our interactive dashboard analysis of UnitedHealth’s fiscal 2024Q3 earnings preview has further details on how the company’s sales and earnings are expected to develop in the quarter.

What are the key trends driving UnitedHealth’s Q3 results?

UnitedHealth should continue to benefit from an increase in the total number of customers for its insurance offerings, which will lead to higher premiums. However, there could be a decline in the Medicaid membership base. International business will also see a decline in membership numbers and sales due to the company’s exit from the Brazilian market. UnitedHealth will likely continue to benefit from its value-based care offerings in the Optum segment. Optum Health has driven the company’s revenue growth recently, a trend that is expected to continue. Sales at OptumRx are also expected to increase due to rising drug prices and the higher number of approval applications. The combination of these factors is expected to result in an 8% year-over-year increase in the company’s third-quarter revenue.

When it comes to profitability, UnitedHealth has seen its net margins decline recently due to higher medical costs. We expect UnitedHealth’s third-quarter medical coverage ratio to likely increase 200 basis points year-over-year. In addition, the cyber attack on the Change Healthcare business earlier this year will also impact earnings. These factors will likely cause earnings growth to be lower than revenue growth in the quarter.

How did UnitedHealth perform in the second quarter?

UnitedHealth Group’s revenue of $98.9 billion reflected 6% year-over-year growth, driven by a 5% increase at UnitedHealthcare and a 12% increase in Optum segment sales. The company’s medical coverage ratio was 85.1% in the second quarter, up 190 basis points year over year. The company’s adjusted operating margin remained stable at 8.7% compared to the previous year. The impact of the cyberattack in the second quarter was $0.92 per share. However, the full-year amount is expected to be between $1.90 and $2.05 per share. Higher revenue and a stable operating margin, coupled with a 1.3% decline in total shares outstanding, led to an 11% year-over-year increase in bottom line earnings to $6.80 on an adjusted and EPS basis.

What does this mean for UNH stock?

We expect UNH stock to trade lower next week as we expect the company to report lower-than-expected sales and profits. However, investors will be watching the medical coverage ratio closely. While we expect this metric to deteriorate by 200 basis points, any significant deviation or revision to full-year earnings expectations will likely determine UnitedHealth’s near-term share price movement.

We are currently estimating UnitedHealth Group Rating to $580 per share, close to current levels of $590. Our forecast is based on a 21x P/E ratio for UNH and expected earnings of $27.55 per share on an adjusted basis for the full year 2024. The 21x P/E ratio is the stock’s average over the last three years. The company expects its 2024 earnings to be between $27.50 and $28.00.

Notably, UNH is one of the few stocks that has increased in value in each of the last three years, but that still wasn’t enough to consistently beat the market. In contrast, the Trefis High Quality Portfolio is less volatile with a collection of 30 stocks. And it has outperformed the S&P 500 every year in the same period. Why is that? As a group, the stocks in the HQ Portfolio offered better returns with lower risk compared to the benchmark index. less of a rollercoaster ride, as the key performance indicators of the HQ portfolio show.

Even though UNH stock looks fully valued, it’s helpful to see how Colleagues at UnitedHealth Group Fare for important metrics. You can find further valuable comparisons for companies in all industries at Peer comparisons.

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