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UnitedHealth beats on Q1 revenues and earnings, improves guidance

UnitedHealth Group (UNH), the biggest player in the US health insurance industry, issued solid financials for the first quarter of 2017. Revenues increased 9.4% y-o-y to $48.7 bn surpassing consensus estimate of $48.2 bn. The improvement was driven by business expansion in both health care benefits and health care services. The company’s health benefits segment – UnitedHealthcare – witnessed revenue growth of 11.8% to $40.1 bn, while revenues from Optum improved 7.9% to $21.2 bn. The company’s Medical membership increased by 735,000 during the quarter. Adjusted earnings per share jumped 30.9% to $2.37 comfortably beating analysts’ average projection of $2.18.

UnitedHealth ended Q4 with cash and short-term investments of $19.4 bn (up 45.8% from the 2016-end level) and long-term debt of $26.2 bn. Debt-to-total-capital ratio was down 550 basis points y-o-y to 43.5%. In the reported quarter, the company generated adjusted operating cash flow of $2 bn and repurchased $682 mn worth of shares. A quarterly dividend was 62.5 cents per share, which offers annualized dividend yield of about 1.5%.

Encouraged by strong Q1, UnitedHealth’s management improved its full year 2017 guidance. The company now expects annual revenues of $200 bn, up from $197-199 bn projected earlier. Adjusted EPS forecast was raised to $9.65-9.86 from $9.30-9.60. The company also plans to generate cash flows from operations of $12 bn.

My outlook for UnitedHealth remains positive. I believe that the company will continue to benefit from higher membership, a strong balance sheet and a niche market position going forward. 

I expect UnitedHealth’s shares to continue growth, with medium-term target at $185.