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UnitedHealth (UNH) Beats on Q2 Earnings, Guides Up for 2017

UnitedHealth Group Inc. UNH reported second-quarter net operating earnings per share of $2.46, comfortably beating the Zacks Consensus Estimate of $2.38 and increasing 25.5% year over year.

Higher revenues, strength in both its segments – UnitedHealthcare and Optum – and membership growth prompted the outperformance.

UnitedHealth has a tradition of guiding conservatively and then beating its own estimates to surprise investors. The company has surpassed expectations in 25 out of 28 reported quarters and the trend continued in the quarter under review.

The stock gained 1.8% in the pre-market trading session and we expect continued outperformance to drive the stock higher.

Behind the Headlines

UnitedHealth posted net revenue of $50.1 billion, in line with the Zacks Consensus Estimate. Revenues were up 7.7% year over year.

The company reported medical care ratio of 82.2%, up 20 basis points year over year.

Operating cost ratio of 14.6% was flat year over year.

Segment Performance

In the reported quarter, UnitedHealth’s health benefits segment – UnitedHealthcare – reported revenues of $40.8 billion, up 8.6% year over year. Earnings from operations increased 13.9% year over year to $2.2 billion.

Revenues from Optum improved 9.9% year over year to $22.7 billion, reflecting strong contribution from the subsegments OptumHealth and OptumInsight as well as OptumRx. Earnings from operations surged 20.5% year over year to $1.5 billion. Continued focus on accelerating growth as well as improving margins and productivity through enhanced integration and business alignment led to the overall improvement of this segment.

Membership Enrollment

The company’s medical enrollment grew to 49.5 million from 48 million in the year-ago quarter.

Capital Position

Cash and short-term investments at quarter end were $17.9 billion, up 35% from the 2016-end level.

Debt to total capital ratio decreased 650 basis points year over year to 41.3% at Jun 30, 2017.

Cash flows from operations were $2.2 billion, up 29% year over year.

Share Repurchase and Dividend Update

During the quarter, the company hiked its quarterly dividend by 20% to 75 cents.

The company repurchased 2.2 million shares during the quarter.

Guidance Update

Encouraged by its strong earnings performance in the first half of 2017, the company raised its outlook for 2017 GAAP net earnings to a range of $9.20 to $9.35 per share (previous guidance $9.10 to $9.30) and adjusted net earnings to a range of $9.75 to $9.90 per share (versus previous guidance of $9.65-$9.85).

Other Stocks That Warrant a Look

UnitedHealth with a Zacks Rank #2 (Buy) has got this reporting cycle off to a flying start. While the other players in the space are lined up to report their financial results, below are three that are poised to beat on earnings as per our model.

Humana Inc. HUM is expected to report second-quarter earnings results on Aug 2. The company has an Earnings ESP of +10.98% and a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Cigna Corp. CI has an Earnings ESP of +0.81% and a Zacks Rank #2. It is expected to report second-quarter earnings results on Aug 4.

Select Medical Holdings Corp. SEM has an Earnings ESP of +4.00% and a Zacks Rank #3. The company is expected to report second-quarter earnings results on Aug 3.

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