UnitedHealth Group Inc. Earnings: Can They Grow Despite Obamacare?

Investors have been enthusiastic about UnitedHealth's prospects, but will the health-insurance giant deliver?

Apr 15, 2014 at 2:30PM

On Thursday, UnitedHealth Group (NYSE:UNH) will release its quarterly report, and investors have anticipated solid results from the health-insurance company by bidding its share to new all-time highs in recent weeks. Yet even as UnitedHealth and rivals WellPoint (NYSE:ANTM) and Humana (NYSE:HUM) have struggled to deal with and incorporate the health-care reforms under Obamacare into their respective business models, UnitedHealth hopes to find new avenues for growth in areas that WellPoint and Humana have largely left untapped.

Investors have been nervous about the impact of Obamacare on health-insurance companies for years, figuring that the requirement that UnitedHealth Group and its peers accept patients with pre-existing conditions would require a massive hit to earnings. Now that the individual mandate has taken effect, the question for UnitedHealth is whether greater numbers of enrollees will make up for the negative impact of higher losses from those who used to be relegated to high-risk pools and other backwaters of the insurance industry. Let's take an early look at what's been happening with UnitedHealth Group over the past quarter and what we're likely to see in its report.

Unh
Source: TaxFix.co.uk, Flickr.

Stats on UnitedHealth Group

Analyst EPS Estimate

$1.09

Change From Year-Ago EPS

(6%)

Revenue Estimate

$32.03 billion

Change From Year-Ago Revenue

5.6%

Earnings Beats in Past 4 Quarters

3

Source: Yahoo! Finance.

Which way will UnitedHealth Group earnings move?
In recent months, analysts have had negative views on UnitedHealth earnings, cutting their first-quarter estimates by a dime per share and making similar reductions to their 2015 full-year projections. The stock, though, has done well, rising 4% since early January.

UnitedHealth Group's fourth-quarter earnings report showed the tale of two businesses that are driving the health-insurance giant's results. Overall, UnitedHealth's revenue rose 8% on membership growth of 170,000 people, and net earnings jumped 18% from the year-ago quarter. Although its traditional insurance business did reasonably well, UnitedHealth Group's biggest growth came from its Optum health-care services division, which enjoyed a 35% gain in sales that came largely from a boost in pharmacy-services revenue.

Yet Obamacare has been a wildcard for UnitedHealth Group and the entire health-insurance industry. WellPoint took an aggressive stance on health-care insurance exchanges, while UnitedHealth Group and some of its peers were more conservative about waiting to see how the exchanges played out. Now that the individual mandate has taken effect, analysts are still uncertain whether the actual mix of new enrollees under Obamacare will lead to greater profits or greater losses for UnitedHealth and other insurance companies. Some demographic studies have found that a relatively small number of Obamacare participants actually lacked insurance coverage prior to enrolling, with gains in employer-sponsored insurance and Medicaid enrollment being offset by millions of previously insured Americans losing their previous coverage.

Another big challenge for UnitedHealth Group could come from Medicare Advantage, where reimbursement rates are under constant threat. Still, UnitedHealth has maintained a relatively modest exposure to Medicare Advantage compared to Humana, which gets more than two-thirds of its earnings from the government program. Moreover, favorable indications that reimbursement rates for Medicare Advantage might not drop as much as had originally been feared led to a brief pop for UnitedHealth and Humana in late February, proving that volatility related to government-program revenue can work both ways.

Still, UnitedHealth Group is seeking to maximize all of its growth opportunities. Its pharmacy benefit management business handles $30 billion in operations, and UnitedHealth's decision in 2011 to bring that business in-house has opened the door to potentially huge profit growth. At the same time, UnitedHealth Group's foray oversees to buy Brazilian insurer Amil two years ago gives UnitedHealth some diversification from the risks involved in its U.S. operations.

In the UnitedHealth Group earnings report, watch to see how Obamacare affects the health insurer's first-quarter results. With full implementation just now taking effect, it'll be interesting to see whether the long-anticipated benefits to Obamacare outweigh the costs that UnitedHealth Group has to bear under the program.

3 stocks poised to be multi-baggers
The one sure way to get wealthy is to invest in a groundbreaking company that goes on to dominate a multibillion-dollar industry. Our analysts have found multi-bagger stocks time and again. And now they think they've done it again with three stock picks that they believe could generate the same type of phenomenal returns. They've revealed these picks in a new free report that you can download instantly by clicking here now.

Click here to add UnitedHealth Group to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends UnitedHealth Group and WellPoint. The Motley Fool owns shares of WellPoint. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers