UNH shares tumble on EPS miss, jump in medical costs

UnitedHealth Group (UNH), one of the largest managed healthcare organizations in the United States, released its fourth-quarter earnings report on Friday, revealing a mix of strong financial results and areas of concern for investors. The company's shares experienced a sharp decline in premarket trading, with a 5.3% drop as investors reacted to the higher-than-anticipated medical costs in the quarter.

UnitedHealth Group reported earnings per share (EPS) of $5.83, excluding non-recurring items, which missed analysts' expectations of $5.98. However, the company's revenue for the quarter surpassed expectations, reaching $94.43 billion compared to the estimated $92.13 billion.

The medical loss ratio (MLR), which measures the proportion of premiums paid out to cover medical expenses, was 85% in the fourth quarter, higher than the expected 84.1%. A higher MLR implies increased medical costs and less room for profit. Jared Holz, Mizuho healthcare equity strategist, commented that We do not think Managed Care stocks can outperform the market when MLR trends are this high.

Despite the higher-than-expected medical costs, UnitedHealth Group's results for the quarter were better than anticipated in terms of revenue and earnings from operations. The company's revenue from its managed care business, UnitedHealthcare, was $70.8 billion, with earnings from operations of $3.1 billion. Analysts had expected revenue of $67 billion and earnings from operations of $3.4 billion.

In its health services business, Optum, revenue was $59.5 billion, exceeding the expected $57 billion. Earnings from operations were $4.6 billion, compared with the $4.4 billion consensus estimate.

The company also announced its performance objectives for 2024, excluding the potential impacts from the pending sale of its Brazil operations, which is expected to close in the first half of 2024. UnitedHealth Group expects revenue between $400 billion and $403 billion and adjusted net earnings per share between $27.50 and $28.

Investors will be closely watching for updates on Medicare Advantage utilization trends in the fourth quarter and details on the company's announcement to sell off its Brazil operations. J.P. Morgan analyst Lisa Gill noted that UNH generally sets the tone for how investors view healthcare service companies.

In conclusion, UnitedHealth Group's earnings report for the fourth quarter revealed strong financial results in terms of revenue, but also raised concerns about the higher-than-expected medical costs, particularly in its managed care business. The company's stock experienced a decline in premarket trading, reflecting investors' reaction to these developments. However, UnitedHealth Group remains confident in its performance objectives for 2024.

Investors and industry analysts will continue to monitor UnitedHealth Group's progress in managing its medical costs and the impact of the pending sale of its Brazil operations on the company's overall financial performance.

$UNH(UNH)