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UnitedHealth (UNH) Q3 Earnings: Stock to Beat Estimates?


Health insurer UnitedHealth Group Inc. UNH is scheduled to release third-quarter financial results before the market opens on Oct 18.

In the last reported quarter, the company beat earnings estimates by 3.7%. Moreover, it has posted a positive earnings surprise in each of the last four quarters, bringing the average beat to 2.93%. Let’s see how things are shaping up for this announcement.

Why a Likely Positive Surprise?

Our proven model shows that UnitedHealth is likely to beat on earnings as it has the right combination of two key components. Note that a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or #2 (Buy) or at least #3 (Hold) to have a significantly higher chance of beating estimates.

Zacks ESP: The Earnings ESP for UnitedHealth is +0.96%. This is because the Most Accurate estimate of $2.10 is higher than the Zacks Consensus Estimate of $2.08.

Zacks Rank: UnitedHealth carries a Zacks Rank #2.

The combination of UnitedHealth’s positive ESP and favorable Zacks Rank makes us fairly confident of an earnings beat this quarter. However, stocks with a Zacks Rank #4 or #5 (Sell-rated stocks) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.

UNITEDHEALTH GP Price and EPS Surprise


Factors to Drive Q3 Results

UnitedHealth’s health services segment, Optum, has been recording double-digit earnings growth for the several quarters now and the third quarter should be no exception. Within the segment, Optum Rx sales are expected to outpace the other two sub-segments – OptumHealth and OptumInsight. This is because the Catamaran acquisition has been bringing in new business wins and strong renewal rates for Optum Rx, thereby fuelling growth at the segment.

Top-line growth should also be propelled by higher premium from the Medicaid and Medicare Advantage businesses.

Meanwhile, the bottom line is projected to be driven by a decline in operating costs due to the combination of a favorable business mix and technology-driven operational efficiencies, partially offset by consistent and systematic investments.

Enrollment growth is likely to be strong on the back of higher memberships in the Medicare and Medicaid businesses, partly offset by a decline in individual exchange membership.

Losses on public exchange business will have an adverse impact on earnings.

The company’s buyback plan is likely to lift up its bottomline.

Other Stocks to Consider

Here are some other health care companies you may want to consider as our model shows that these too have the right combination of elements to post an earnings beat this quarter:

Quintiles IMS Holdings, Inc. Q provides biopharmaceutical development services and commercial outsourcing services in the Americas, Europe, Africa, and the Asia-Pacific. The company is slated to report third-quarter earnings on Oct 26. It has an Earnings ESP of +1.01% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

VCA Inc. WOOF operates as an animal healthcare company in the United States and Canada. It operates through two segments – Animal Hospital and Laboratory. It has an Earnings ESP of +1.24% and carries a Zacks Rank #2. The company is slated to report third-quarter earnings on Oct 26.

Aetna Inc. AET operates as a health care benefits company in the U.S. It operates through three segments – Health Care, Group Insurance and Large Case Pensions. It has an Earnings ESP of +1.49% and carries a Zacks Rank #2. The company is slated to report third-quarter earnings on Oct 27.

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