UnitedHealth Crushes Earnings; Dow Jones Stock Rises In Buy Zone

UnitedHealth Group (UNH) kicked off first-quarter earnings season for the managed care group by crushing Wall Street estimates early Thursday. UNH stock, a Dow Jones component, rose in early stock market action, but remained in a buy zone.




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UnitedHealth substantially raised prior guidance for full-year 2021 earnings, but it didn’t alter its earlier projection that that Covid-related expenses and deferred care could cut $1.80 per share from EPS this year. The company saw a profit windfall in last year’s second quarter, when earnings nearly doubled as the coronavirus lockdown led Americans to forgo nonemergency medical care.

UnitedHealth said medical costs as a percentage of premiums remained in check, with its medical care ratio dipping to 80.9% from 81% a year ago.

“The unique combined capabilities of Optum and UnitedHealthcare and the unwavering commitment of our people continue to help advance the way care is delivered, improving results for those we serve and shareholders,” UnitedHealth CEO Andrew Witty, said in a statement.

UnitedHealth Earnings

Estimates: Analysts expected UnitedHealth earnings of $4.41 a share, up 18.6% vs. a year earlier. Revenue was seen rising 7% to $68.98 billion, according to Zacks Investment Research.

Results: UnitedHealth adjusted earnings per share jumped 42.7% to $5.31. Revenue climbed 9% to $70.2 billion, led by 11% growth in revenue for the Optum health services division to $36.4 billion.

Medicare Advantage customers rose 635,000 from Q4 to a total of 6.335 million. Medicaid members rose 355,000 to 6.975 million.  Commercial insurance members served by UnitedHealth rose 95,000 to 26.315 million.

Outlook: UnitedHealth raised its 2021 guidance for full-year adjusted EPS to a range of $18.10-$18.60 from $17.75 to $18.25. That continues to build in a Covid hit of $1.80 per share. Ahead of the Q1 UnitedHealth earnings report, analysts projected full-year EPS of $18.17.

The higher earnings outlook amid elevated Covid costs is great news for UNH stock, because it suggests even stronger underlying earnings power.

UNH Stock Analysis

UNH stock advanced 1.4% to 381 ahead of Thursday’s opening bell. The Dow Jones stock edged up0.3% to 375.63 on Wednesday. UNH stock is above a 368.05 buy point from a 17-week flat base, according to a MarketSmith analysis.

The 5% chase zone for UNH stock runs through 386.45.

UNH first closed above its buy point on March 23 and rallied as high as 380.50 over the next week, though the move came mostly on below-average volume. UNH stock slipped back below the buy point in early April, before finding support at its 21-day average and making another charge past the buy point on April 9.

Investors could treat 380.60, just above the March 23 peak, as another alternate entry.

Still, UNH stock has underperformed the S&P 500 for the past year. That’s reflected in UnitedHealth’s relative strength line, the blue line in IBD charts, which is well below its April 2020 high.

Political Risk For UnitedHealth Stock

UNH stock surged higher on Jan. 6 as Democrats captured Senate control. The initial reaction to Georgia’s runoff elections suggested that Wall Street thinks that health insurers might have more to gain from increased insurance subsidies and coverage than from regulation such as a public option.

Yet UNH stock’s rally on Jan. 6 likely had a lot to do with the day’s other big news: its acquisition of Change Healthcare. The deal is projected to boost adjusted 2022 EPS by 50 cents. However, the Department of Justice is taking a closer look at the $13 billion deal for the data analytics company after the American Hospital Association raised antitrust concerns.

Please follow Jed Graham on Twitter @IBD_JGraham for coverage of economic policy and financial markets.

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