UnitedHealth Group Posts Earnings Exceeding Estimates Amid Increasing Medical Costs

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The healthcare and insurance service provider UnitedHealth Group reported stronger-than-expected fourth-quarter earnings Wednesday of $2.52 per share exceeding the estimate of $2.39 per share. Revenue slightly exceeded estimates of $65.24 billion posting $65.467 billion for the quarter.

Profit & Revenue

The company’s earnings per share dropped 35% to $2.52 or $2.2 billion as compared to the fourth-quarter earnings of 2019 which were $3.5 billion. Revenues jumped 7.5% to $65.467 billion from $60.9 billion for the same period last year.

How The Pandemic Led To Wider Profit Margins For UnitedHealthcare

The last year was filled with volatility for the health and insurance sector. Before the fourth quarter, health insurance companies like UnitedHealth saw huge growth in profits fueled by people delaying elective surgeries and procedures, resulting in fewer visits to hospitals.

The condition was most prevalent in the second and third quarter of 2020 when lockdowns were implemented, and people had to stay at home. These orders restrained people from giving regular visits to clinics unless there were emergencies.

Fewer people getting treatment meant fewer medical claims submitted to UnitedHealth Group’s UnitedHealthcare which meant more profit for the business. Insurance companies make profits through the difference between premiums received in exchange for their services and the claims that the company must pay if a certain situation occurs. However, medical costs for the Group climbed to $42 billion in the fourth quarter compared to $39.2 billion for the same period last year.

Optum’s Contribution To Revenue

Thanks to UnitedHealth Group’s diverse portfolio of businesses, the rising costs of UnitedHealthcare were offset by the medical care provider Optum health services and the huge pharmacy manager OptumRx.

Optum’s earnings and revenues climbed for the fourth quarter with earnings from operation touching $3.1 billion compared to $3 billion for the fourth quarter of 2019. Revenues rose 20% to $35.9 billion compared to $29.8 billion in the same quarter a year ago.

Existing Market

Medicare Advantage customers surged to 5.71 million increasing by 440,000 from a year ago while Medicaid members rose 720,000 to 6.62 million. Commercial insurance members declined 1.54 million to 26.22 million as unemployment rocketed during the pandemic.

2021 Guidance

UnitedHealth reiterated on Wednesday its profit forecasts for 2021 which it sees in the range of $17.75 and $18.25 per share. This includes a hit of around $1.8 per share owing to the increasing Coronavirus costs and the procedures that are currently being delayed on top of the rising unemployment that has affected commercial health insurance. According to FactSet, analysts estimate adjusted earnings per share of $18.20. UnitedHealth expects 2021 revenue to fall in the range of $277 billion to $280 billion, 9% higher than the company’s 2020 forecast.

Shares

Shares of UnitedHealth earned a buy rating since the rally started on January 6 as the company announced its acquisition of Change Healthcare. The deal is expected to increase adjusted EPS by 50 cents in 2022. In the premarket trading Wednesday, shares were up 0.8% to arrive at an opening price of $355. However, they have declined 0.2% since then to $351.04.

Source Forbes Investor's Business Daily The Street

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