Morningstar

Strong Quarter, Cautious 2020 Outlook for UnitedHealth

UnitedHealth shows momentum, but we do not expect to change our fair value estimate for the wide-moat firm.

Securities In This Article
UnitedHealth Group Inc
(UNH)

Wide-moat-rated UnitedHealth Group UNH reported third-quarter results that beat consensus on the top and bottom lines. Positive trends continued in all major business lines, and the firm increased its adjusted earnings outlook for 2019 based on those trends. While we appreciate UnitedHealth's momentum, we do not expect to change our fair value estimate on the basis of these announcements.

During the quarter, revenue grew 7% year over year to $60.4 billion, operating profits grew 9% to $5.0 billion, and adjusted earnings per share grew 13% to $3.88. UnitedHealthcare, the leading U.S. health insurer, grew 5% year over year to $48.1 billion in revenue while operating profits grew 4% during the same period to $2.7 billion. This business continues to benefit from the expansion of Medicare Advantage plans, and the recent executive order bolstering that program may reinforce those positive trends.

The Optum businesses delivered 13% consolidated revenue growth to $28.8 billion and operating profit growth of 16% to $2.4 billion. By business line, OptumHealth, which recently closed on the acquisition of DaVita Medical Group, increased revenue 34% to $8.1 billion. OptumInsight, the company's healthcare-focused information technology group, grew 16% year over year to $2.6 billion while its backlog grew 21% to $19.0 billion, which bodes well for future growth. OptumRx grew 6% to $18.5 billion, despite the ongoing transition of Cigna's business after the latter's acquisition of top-tier pharmacy benefit manager Express Scripts.

With these strong trends, the firm now expects to generate adjusted EPS of $14.90-$15.00 in 2019, up about 16% year over year and up from its $14.40-$14.70 original guidance. The company plans to give 2020 expectations at its Dec. 3 analyst day. However, management expects its core earnings outlook to be on the low end of its typical 13%-16% growth goal and may be further influenced negatively by the reinstatement of the health insurance tax.

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About the Author

Julie Utterback, CFA

Senior Equity Analyst
More from Author

Julie Utterback, CFA, is a senior equity analyst, AM Healthcare, for Morningstar*. She focuses on medical technology and service companies. She covers managed care organizations including UnitedHealth, service providers like HCA, medical suppliers such as Baxter, and life sciences companies like Danaher. She is also the chairperson of the equity research team’s capital allocation methodology.

Before joining Morningstar in 2005, Utterback was an equity analyst at State Farm Insurance for several years. Utterback joined Morningstar in 2005 as an equity analyst in the healthcare industry, and initially she primarily covered medical technology companies, including orthopedic device, medical equipment, and cardiac device firms. In 2010, she joined Morningstar's credit research team, initiating coverage of the entire healthcare industry and generally helping the organization expand and maintain its credit coverage across many industries. She held that senior credit analyst role until April 2019, when she returned to the equity team to cover medical technology and service companies.

Utterback holds a bachelor's degree in finance from the University of Illinois Urbana-Champaign’s Gies College of Business. She also holds the Chartered Financial Analyst® designation.

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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