UNH Earnings Preview: Focus on the optum business

UnitedHealth Group (UNH) is set to release its Q4 earnings results tomorrow before the market opens, with an earnings call scheduled at 8:45 am ET. Analysts project adjusted EPS of $6.73, reflecting a year-over-year growth of 15%, and revenue of $101.6 billion, an 8% increase from the prior year. Key metrics to watch include the company’s medical cost ratio (MCR), which reached 85.2% in Q3, up 290 basis points year-over-year, as rising costs for specialty medications, Medicaid rate mismatches, and coding intensity have placed pressure on margins. The Centers for Medicare & Medicaid Services (CMS) recently proposed a 4.3% hike in Medicare Advantage payments, which could add $21 billion to Medicare reimbursements for insurers, providing a potential tailwind for UNH.

Investors will focus on how UNH’s Optum business, which saw a 13% revenue increase last quarter, continues to drive top-line growth. Optum, which combines pharmacy, care delivery, and data analytics, has outpaced the overall company growth and remains a critical component of UnitedHealth’s strategy to expand its value-based care offerings. Medicare Advantage growth will also be under scrutiny, with analysts projecting total Community and Senior membership at 19.74 million, slightly down from 19.9 million in Q4 2023, amid concerns about rising medical costs and regulatory headwinds. UNH’s ability to navigate these pressures and maintain robust enrollment growth will be key.

The tragic loss of UnitedHealthcare CEO Brian Thompson in December has brought uncertainty to the company, and this earnings report will be closely watched for any updates on leadership and strategy. Despite this setback, UNH maintained its FY2025 guidance of $29.50-$30.00 in adjusted EPS and revenues of $450-$455 billion, indicating confidence in its long-term fundamentals. Analysts are keen on hearing details about cost-reduction initiatives, as UNH has emphasized the need to streamline operations to address the rising healthcare cost environment. Any announcements regarding divestitures or operational changes could significantly influence the stock.

CMS regulations and broader healthcare policies remain a focal point for UnitedHealth and its peers. The recent ability of the government to negotiate drug prices for Medicare beneficiaries adds another layer of complexity for insurers like UNH, as it could reduce revenue streams while also benefiting patients. Analysts are cautiously optimistic that UNH’s diversified business model and strong cash flows will mitigate these challenges. Peers Elevance Health (ELV), Centene (CNC), Molina Healthcare (MOH), and Humana (HUM) will report their Q4 results in the coming weeks, and their performance could provide additional context on sector dynamics and regulatory risks. With UNH shares currently trading about 10% below their December 3 levels, this report will be pivotal in shaping sentiment and setting the tone for 2025.