UnitedHealth (UNH) Pre-Q2 Earnings: Healthy Buy or a Wait-&-See?

Core Viewpoint - UnitedHealth Group is expected to report strong second-quarter 2024 results, driven by growing premiums, commercial memberships, and the performance of its Optum business segment [1][5]. Earnings Estimates - The Zacks Consensus Estimate for second-quarter earnings is $6.68 per share, reflecting an 8.8% increase from the previous year, although it has been revised down by two analysts by 2 cents from$ 6.70 [1][2]. - Revenue estimates for the second quarter are nearly $99 billion, indicating a 6.5% year-over-year growth [1]. Membership Trends - Total domestic commercial customers are projected to grow by 3% year-over-year, while Medicare Advantage members are expected to rise by 3.6% [6]. - However, Medicaid memberships are anticipated to decline by 8.8%, and international memberships are expected to drop nearly 60% year-over-year [6]. Optum Business Segment - The Optum segment is expected to show a 15.7% year-over-year increase in operating income, supported by growth in value-based care arrangements and technology-enabled offerings [7]. - Contributions from both Optum Health and health benefits divisions are anticipated to bolster premium growth [5]. Revenue Growth - Premium revenues are estimated to grow by 6.3% year-over-year, while service revenues are expected to increase by almost 7% [5]. - Product revenues are projected to see more than 8% growth, with the Zacks Consensus Estimate indicating over 9% [5]. Cost and Margin Pressures - Rising medical and operating costs are expected to elevate overall expenses, with total operating costs estimated to increase by nearly 7% from the prior year [8]. - The medical care ratio is projected at 84.22%, up from 83.20% in the previous year, indicating potential margin pressures [8]. Cyber-Attack Impact - A cyber-attack on Optum's Change Healthcare business is estimated to have a financial impact of around$ 1.6 billion, affecting profit growth in the second quarter [9]. Stock Performance and Valuation - UnitedHealth's stock has declined 4.2% year-to-date, underperforming the S&P 500, which has risen 18.8% [10]. - The company is trading at 17.22X forward 12-month earnings, above the industry average of 15.16X, indicating a somewhat stretched valuation [11]. Investment Outlook - The company has a promising long-term growth outlook with an estimated earnings growth rate of 12.3% over the next five years, compared to the industry average of 11.6% [12]. - Despite strong long-term prospects, short-term challenges such as the cyber-attack impact and rising medical costs may limit stock performance [12][13].