Please ensure Javascript is enabled for purposes of website accessibility

UnitedHealth Finishes 2018 on a Healthy Note

By Dan Caplinger - Updated Apr 18, 2019 at 10:22PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Here's why the health insurer's optimistic about 2019.

Check out the latest UnitedHealth Group earnings call transcript.

UnitedHealth Group (UNH 2.03%) had a strong 2018, with its stock producing a total return of nearly 15% for shareholders over the course of the year. With many investors seeing healthcare as a defensive industry, UnitedHealth and its peers even managed to hold onto much of their gains when the stock market plunged during the last month of the year, despite some concerns about a new challenge to the Affordable Care Act that could jeopardize a key source of revenue for the industry.

Coming into Tuesday's fourth-quarter financial report, UnitedHealth investors were looking for the insurer to finish 2018 strong and wanted confident outlooks for 2019. UnitedHealth's results were solid, and even though not everyone was satisfied with its guidance, UnitedHealth appears to remain on a good pathway toward sustained growth.

Stylized square logo for OptumCare.

Image source: UnitedHealth Group.

A new year for UnitedHealth

UnitedHealth's fourth-quarter results continued a long string of good results for the company. Sales came in at $58.4 billion, topping the $58 billion forecast among those following the stock and rising by about 12% from the fourth quarter of 2017. Net income came in at $3.04 billion, and after accounting for some one-time items, adjusted earnings of $3.28 per share were up 27% from year-ago levels and topped the consensus forecast for $3.21 per share.

One of the highlights that UnitedHealth emphasized was its Optum unit's surpassing the $100 billion mark in annual revenue. Quarterly sales growth of 13% resulted in a 22% jump in the segment's operating profit, and UnitedHealth pointed to efforts to boost margin as particularly important in Optum's overall improvement. OptumHealth saw the biggest sales gains during the year, with the health management business serving 93 million members at year-end. OptumInsight also posted double-digit-percentage growth for 2018 on strength in its data analytics services. OptumRx brought up the rear with 9% growth in sales, with 1.34 billion prescriptions filled during the year.

The UnitedHealthcare division was only slightly behind. Revenue climbed 11% in the fourth quarter compared to the year-earlier period, although operating earnings were higher by only 2% over the same time frame. Weakness in UnitedHealth's Medicaid program weighed on the segment, and some seasonal factors also were at play in holding the company back. Yet solid gains of 2.4 million members showed the growth that UnitedHealth is experiencing, and international acquisitions helped bolster the UnitedHealthcare Global unit's sales by more than a quarter during 2018.

UnitedHealth also saw fundamental strength in its underwriting. Consolidated medical care ratios came in at 81.6% for 2018, down half a percentage point from 2017 levels, and cost trends continued to include favorable reserve development that helped UnitedHealth's overall results.

Can UnitedHealth keep growing in 2019?

CEO David Wichmann attributed the company's success to its employees. "The 300,000 dedicated women and men of UnitedHealth Group are positively impacting society," Wichmann said, "by restlessly pursuing a mission to help people live healthier lives and to improve health system performance." The CEO noted that their efforts have also put UnitedHealth in a strong position going into 2019.

Yet some investors were likely disappointed that UnitedHealth merely reaffirmed its previous 2019 outlook. The health insurance giant expects that adjusted earnings will come in between $14.40 and $14.70 per share, which would represent roughly 12% to 14% growth from 2018 levels. That's a solid growth rate, but it pales in comparison to the 28% bottom-line gains that UnitedHealth posted over the past year -- due in significant part to the beneficial impacts of tax reform.

Perhaps because of that, UnitedHealth investors didn't seem to respond all that favorably to the news, and the stock was down 2% in premarket trading following the announcement. Despite having plenty of opportunities to keep growing, UnitedHealth will have to keep a close eye on Washington to see what developments come on the political front. Shareholders have dealt with this uncertainty before, though, and they know that UnitedHealth has found ways to take advantage of it in the long run.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool recommends UnitedHealth Group. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

UnitedHealth Group Incorporated Stock Quote
UnitedHealth Group Incorporated
UNH
$543.70 (2.03%) $10.84

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
400%
 
S&P 500 Returns
128%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/13/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.