UnitedHealth Beats on Q1 Earnings, Lags Revs - Analyst Blog

U.S. health insurer UnitedHealth Group Inc. UNH reported first-quarter 2014 operating earnings of $1.10 per share, a penny ahead of the Zacks Consensus Estimate. However, earnings declined from $1.16 per share earned in the year-ago quarter.

Total revenue of $31.7 billion increased 5.0% year over year. However, the figure lagged the Zacks Consensus Estimate of $32.0 billion. The year-over-year increase in total revenue can primarily be attributed to an increase in people served in the public and senior markets at UnitedHealthcare as well as growth in Optum.

UnitedHealth improved its medical membership count by 6.3% year over year to 44.665 million as of March 31, 2014. Membership expansion was primarily driven by the TRICARE business. Other lines such as Medicare Advantage, Medicaid, Medicare Supplement and International also aided overall growth.

First-quarter medical care ratio decreased 20 basis points (bps) year over year to 82.5% and remained within the Obamacare mandated range of 80–85%.

Consolidated operating margin came in at 4.8%, down 90 bps from the year-ago quarter.    

Segment Details

The company's UnitedHealthcare segment reported revenues of $29.3 billion, up 4% year over year, led by an increase in the number of people served across all medical benefit markets throughout the year.

Earnings from operations decreased 12.5% year over year to $1.4 billion. The decline stemmed from the effects of the ACA and Medicare sequestration. Also, a decline in the overall level of reserve development led to the fall in earnings from operations.  

Optum's revenues of $11.2 billion rose 29% year over year, primarily on strong contribution from its sub-segments, Optum Rx, OptumHealth and OptumInsight. Earnings from operations grew 20% year over year to $650 million.

Financial Update

As of March 31, 2014, the debt-to-capital ratio of UnitedHealth stood at 34%, reflecting a 41 bps improvement from 34.4% as of Dec 31, 2013.

UnitedHealth released $1.4 billion of cash from operations at the end of the first quarter of 2014, up 33.7% year over year.  

Guidance Reaffirmation

UnitedHealth reiterated its 2014 revenue guidance of $128.0 billion to $129.0 billion and EPS projection of $5.40–$5.60.

Zacks Rank

UnitedHealth currently carries a Zacks Rank #3 (Hold). However, some better-ranked stocks in the industry are Aetna Inc. AET, WellPoint Inc. WLP and MEDNAX, Inc. MD. All three stocks carry a Zacks Rank #2 (Buy).