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UnitedHealth Keeps ’17 Guidance & Issues ’18 View, Stock Up


On the recent conference call, UnitedHealth Group Inc. UNH reiterated its 2017 guidance that was earlier provided with the third-quarter earnings release in October. The company also gave a strong view for 2018.

Adjusted earnings per share of nearly $10 are expected to be generated on revenues of approximately $201 billion. The 2017 earnings and revenue guidance reflects year-over-year growth of 24% and 9%, respectively.

For 2018, UnitedHealth expects adjusted EPS in the range of $10.55-$10.85, considerably higher than the Zacks Consensus Estimate of $9.99. The company issued guidance for revenues in the band of $223-$225 billion, much ahead of the Zacks Consensus Estimate of $200.11 billion.

Cash flows from operations are expected within $13.3-$13.8 billion.

The earnings outlook for 2018 is backed by the company’s expectation of higher contribution from its Medicare advantage business, which is anticipated to grow enrollment by nearly 11% and revenues by approximately 13%. The company seeks to achieve this growth on the back of a strong performance in Star Ratings.

A key earnings driver for UnitedHealth is its Optum business, a perfect complement to its core managed care operations. The unit is expected to post revenues and operating earnings in the range of $99-$100 billion and $7.8-$8.0 billion, respectively, thus pointing to year-over-year growth of 9-10% and 16-19%, respectively. Numerous acquisitions in the unit have brought it fast-paced improvement and have been very accretive to the company’s overall earnings.

Investors took the above news positively, driving the shares up to hit a 52-week high at $216.31.

In the past six months, the stock has gained 22.5% compared with the industry’s growth of 20.6%.

UnitedHealth has a tradition of providing views conservatively and then beating on its earnings and revenues to surprise investors. Since 2009, the company has surpassed expectations in 24 of the 28 reported quarters.

More good news is that the company is well-positioned for long-term growth by virtue of its diversification, a strong track record, an elite management team and exposure to several higher-growth businesses. Its business model which has a lesser exposure to the Obamacare exchanges and Medicaid (which are on gun point of repeal and replace) provides it a good defence against the changes to be bought.

UnitedHealth carries a Zacks Rank #3 (Hold). Some better-ranked stocks from the healthcare sector are WellCare Health Plans Inc. WCG, Centene Corp. CNC and The Joint Corp. JYNT. While WellCare Health Plans sports a Zacks Rank #1 (Strong Buy), the other two carry a Zacks Rank #2 (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 64.3%.

Centene pulled off positive surprises in each of the trailing four quarters with an average beat of 10.6%.

The Joint Corp. beat estimates in three of the four reported quarters with an average positive surprise of 5.5%.

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