UnitedHealth: Q4 Earnings Snapshot - Navigating Challenges and Opportunities

UnitedHealth Group (UNH) is set to report its fourth-quarter 2024 earnings on January 16, 2025, before the opening bell. The company's earnings and revenue growth have been driven by various factors, including the expansion of its commercial membership base, growth in service revenues from Optum, and increased product revenues. However, the company faces several challenges, such as increased scrutiny following the death of its UnitedHealthcare CEO, Brian Thompson, and political pressure on pharmacy benefit managers.



UnitedHealth's fourth-quarter earnings are expected to have benefited from higher premiums, driven by the expansion of its commercial membership base. The Zacks Consensus Estimate for premium revenues for the fourth quarter indicates nearly 7% year-over-year growth, whereas our model estimate suggests a 7.8% increase. Higher contributions from both Optum Health and UnitedHealthcare divisions are expected to have supported premium growth. The company's top-line performance is expected to have been enhanced by a rise in service revenues from the Optum brand, with the consensus estimate implying a 7.5% jump in service revenues. This growth is attributed to value-based care expansion in Optum Health, new client wins at Optum Rx, and enhanced technology-enabled offerings.

The Zacks Consensus Estimate for product revenues indicates a more than 15% increase, driven by the company's focus on innovative offerings and successful market share capture in a competitive landscape. The Zacks Consensus Estimate for operating income from the Optum business segment suggests a 17% year-over-year increase, expected to have positioned the company for year-over-year growth in the fourth quarter. However, the Zacks Consensus Estimate for operating income from UnitedHealthcare indicates only 2.1% year-over-year growth, which might have pulled down overall growth levels.

UnitedHealth's membership growth is expected to have contributed to the company's revenue and earnings growth in the quarter. The Zacks Consensus Estimate for UnitedHealthcare’s total domestic commercial customers suggests 4.7% year-over-year growth, whereas our estimate implies a 4.5% gain. The consensus mark for Medicare Advantage members indicates a 3% year-over-year rise. However, the consensus estimate for Medicaid memberships implies a 4.6% decline from the year-ago level, while our model estimate suggests a 4.9% slip. Both the consensus estimate and our model estimate imply a more than 4% fall year over year in total memberships.



Rising medical costs, as seniors continue resuming elective procedures, are expected to have elevated UnitedHealth's overall expenses in the quarter. The expected growth in healthcare utilization, especially in the Medicare Advantage space, might have affected margins, making an earnings beat uncertain this time around. Our model estimate for total operating costs indicates a 7.8% increase from the prior-year period. The Zacks Consensus Estimate for UNH's medical care ratio is pegged at 86.08%, up from 85% in the year-ago quarter. Our estimates for medical costs and costs of products sold indicate 7.2% and 12.6% year-over-year increases, respectively.

UnitedHealth's stock has declined 3.5% in the past year compared with the industry's fall of 8.2%. The company's peers have also experienced a decline in stock prices, with the industry average falling by 8.2% over the same period. UnitedHealth's price performance and valuation suggest that the company may be undervalued, presenting an opportunity for investors to buy the stock at a discount.



In conclusion, UnitedHealth Group's fourth-quarter earnings report is expected to provide insights into the company's financial performance and guidance for the upcoming year. While the company has experienced growth in revenues and earnings, it also faces challenges such as increased scrutiny following the death of its UnitedHealthcare CEO and political pressure on pharmacy benefit managers. Investors should closely monitor the company's earnings report and guidance to make informed decisions about their investments in UnitedHealth Group.