UnitedHealth Group (UNH) easily surpassed first-quarter earnings on Tuesday, as reporting season for the managed care group kicked off. Investors initially gave the thumbs up, sending UNH shares higher, although the results exclude most of the costs the company incurred to sustain operations and support affected medical providers following the cyberattack on its Change Healthcare unit.
X
The attack disrupted bill processing, caused cash flow problems for providers and prevented patients from obtaining approval for medical procedures and prescriptions. UnitedHealth said it has provided more than $6 billion in financing and interest-free loans to providers.
UnitedHealth revenues
Estimates: According to the FactSet consensus, UnitedHealth was expected to post first-quarter adjusted earnings per share of $6.61, up 5.6% from a year ago. Revenue rose 8% to $99.2 billion.
Analysts expected UnitedHealth’s medical expense ratio to rise to 83.8%, up from 82.2% a year ago, due to a higher percentage of premiums paid out as benefits amid increased use of Medicare Advantage.
Results: Adjusted earnings per share rose 10.4% to $6.91, while revenue grew 8.6% to $99.796 billion.
UNH said its response to the cyberattack was 74 cents per share in the first quarter. Of that, UNH said it deducted 25 cents from adjusted earnings per share, reflecting lost revenue and higher operating costs for Change Healthcare. The remaining 49 cents related to the recovery of the Change Healthcare platform and increased medical expenses “because the company suspended some care management activities to help healthcare providers” work around the problems caused by the cyberattack.
These higher expenses increased UNH’s medical expense ratio by 40 basis points to 84.3%, implying a ratio of 83.9% excluding Change Healthcare issues.
Outlook: UNH said it expects a full-year impact from the cyberattack of $1.15 to $1.35 per share. Still, the company reaffirmed its adjusted EPS outlook of $27.50 to $28.
Key questions for UNH
Medicare Advantage “commentary on usage should drive price action,” Jefferies analyst David Windley wrote in a note Friday.
However, Windley noted that there are several concerns that cast some doubt on UnitedHealth’s ability to achieve its long-term annual earnings growth target of 13% to 16%.
Earlier this month, the Biden administration finalized the 2025 Medicare Advantage payment rates, which were less generous than hoped. Windley expects managed care players will respond to tight margins by scaling back additional benefits, but that will likely reduce membership growth.
Windley also sees potentially slower growth for UnitedHealth’s Optum services division. About a third of Optum’s growth comes from acquisitions, Windley says. But he thinks the pace of deals could slow due to a Justice Department investigation into the relationship between UNH’s UnitedHealthcare managed care division and the Optum unit.
UNH, managed care equity
UNH shares rose 6.6% to 475 on the stock market on Tuesday. That followed a 1.5% gain on Monday as the S&P 500 struggled. Still, UNH closed Monday 20% below its 52-week high.
Centene (CNC) and Molina Healthcare (MOH) were big movers Monday as investors reacted to Medicaid contract news.
Late Friday, Florida announced five winners of six-year Medicaid managed care contracts, including Centene’s Sunshine State Health Plan. Human (HUM) was also among the winners.
In research notes Monday, Wells Fargo analyst Stephen Baxter called the decision particularly positive for Centene after recent disappointments in contract bids. He raised his price target for Centene from 89 to 93, maintaining his outperform rating.
Wells Fargo lowered its price target on Molina to 410 from 440 as Florida’s decision was a setback to expectations of market share gains.
Florida serves 3.45 million people through Medicaid managed care plans.
CNC shares rose 2.8% in Monday’s stock market action and Humana rose 0.7%, while MOH fell 4.2%.
You might also like:
These are the 5 best stocks to buy and watch now
Join IBD Live every morning for stock tips before the open
How to make money with stocks in 3 easy steps
Nvidia leads five stocks near buy points
