At its recent investors’ conference, UnitedHealth Group Inc. UNH reiterated its 2016 guidance that was provided with the third-quarter earnings release. Revenues are projected to exceed $184 billion, with net earnings of approximately $7.45 per share and adjusted net earnings of approximately $8.00 per share. Following better-than-expected third-quarter results, net earnings and adjusted earnings projections were raised from the range of $7.25–$7.40 and $7.80–$7.95, respectively.
UnitedHealth also issued guidance for 2017. It expects revenues in the range of $197 billion to $199 billion, net earnings of $8.75 to $9.05 per share, and adjusted net earnings of $9.30 to $9.60 per share. Cash flows from operations are expected within $11.5 billion to $12 billion.
The earnings guidance for 2017 is backed by the expectation of stable medical costs and higher contribution from its health service business Optum. Also, the exit made by the company from 31 loss-making public exchanges under the Affordable Care Act will shield its bottom line. This year, the public exchange business is expected to incur losses of $850 million. The company will sell its plans only on three markets in 2017.
Investors took the news positively and sent shares up by 2.2% in after-hours trading. Since the third-quarter earnings release, the stock has gained 6.1% compared with a gain of 10.2% in the Zacks categorised Health Maintaience Organization industry.
UnitedHealth, however, has a tradition of guiding conservatively and then beating its own estimates to surprise investors. Since 2009, the company has surpassed expectations in 25 out of the 28 reported quarters.
Then again, the company is well positioned for long-term growth by virtue of its diversification, strong track record, an elite management team and exposure to certain higher-growth businesses.
The company's Optum business is a nice complement to its core managed care operations and is expected to ultimately see 30–40% earnings growth.
Furthermore, opportunities from the International business should open up new avenues of growth that could lead to impressive long-term returns.
UnitedHealth carries a Zacks Rank #3 (Hold).
Investors can look at some better-ranked stocks from the medical sector like Magellan Health Inc. MGLN, WellCare Health Plans Inc. WCG and Humana Inc. HUM.
Magellan delivered a positive surprise in three of the last four quarters with an average beat of 42.58%. The company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
WellCare delivered positive surprises in each of the last four quarters with an average beat of 40.01%. The company also has a Zacks Rank #1.
Humana delivered positive surprises in three of the last four quarters with an average beat of 1.94%. It carries a Zacks Rank #2 (Buy).
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