UnitedHealth Beats Estimates - Analyst Blog

UnitedHealth Group’s (UNH) fourth quarter earnings of 81 cents per share were well ahead of the Zacks Consensus Estimate of 73 cents. Results were also ahead of the prior-year period’s earnings of 60 cents. The better-than-expected results reflected strong contributions from the health services businesses and the public and senior health benefits program.

For the full year, revenue rose to $87.14 billion from $81.19 billion in the prior year. Earnings per share came in at $3.24, ahead of the management’s guidance of $3.15.

Total revenues during the quarter increased 6.5% year-over-year to $21.8 billion. The increase was primarily driven by an increase in premium revenues in the Health Care Services segment due to strong organic growth in risk-based offerings in public and senior markets businesses and premium rate increases in response to growth in underlying medical costs.

Medical costs during the quarter increased 6.8% year-over-year to due to a growth in public and senior markets risk-based businesses and elevated medical costs. Total operating cost during the quarter increased 5.4% year-over-year to $20.2 billion.

In the commercial side of the business, in addition to decreasing enrollment, UnitedHealth faces the flow-through of members selecting lower-premium or higher deductible plans. Commercial enrollment dropped 6.5% during the quarter at 24.6 million people. While enrollment in government programs (Medicare and Medicaid) increased 12.5%, it tends to be less profitable in general. We see recovery from this headwind as a multi-year process.
 
For 2010, management reaffirmed its earnings expectation in the range of $2.90–$3.10 per share.
 
UnitedHealth Group is one of the most diversified of the listed managed care companies. With a broad product and service offering, the company targets the full spectrum of the population. As a result, earnings are buffered to a certain degree against any single change in market dynamics. Though the market remains challenging, we expect the company to grow revenues, albeit at a slower rate.

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