UnitedHealth Earnings: Diversification Benefits On Display as Medical Utilization Rises
UnitedHealth stock remains fairly valued, and our 2024 earnings forecast is above management’s outlook
Key Morningstar Metrics for UnitedHealth Group
- Fair Value Estimate: $520.00
- Morningstar Rating: 3 stars
- Morningstar Economic Moat Rating: Narrow
- Morningstar Uncertainty Rating: Medium
What We Thought of UnitedHealth Group’s Earnings
UnitedHealth Group UNH turned in mildly stronger fourth-quarter results than expected, highlighting the benefits of its diversified business model even as medical utilization rose. However, those results were not enough for us to change our recently raised $520 fair value estimate, especially since the firm maintained its 2024 guidance. Shares dropped toward their fair value in early trading on concerns around medical utilization.
UnitedHealth reported strong operating results for the quarter, including 14% revenue, 12% operating profit, and 15% adjusted EPS growth. In the medical insurance business, medical membership grew 2% and revenue grew 12%, despite weakness in Medicaid (-4%) from resumed redetermination activities. However, increasing medical utilization constrained the segment’s operating profit growth to just 6%. Positively, the firm’s Optum franchises, which represent nearly half of its profits, benefited from the medical utilization trends, with 24% top-line and 15% operating profit growth, led by the caregiving unit Optum Health (33% revenue growth) and its PBM Optum Rx (20%), which helped offset weakness in medical insurance.
Management stuck to the 2024 guidance it gave at investor day, including adjusted EPS of $27.50-$28.00, or 10% growth at the midpoint. While that initial guidance remains below the firm’s long-term annual earnings growth goal of 13%-16%, we think it recognizes the challenges managed-care organizations face in 2024, including ongoing Medicaid redeterminations, regulatory headwinds that may decelerate Medicare Advantage growth, and increasing medical utilization. But UnitedHealth tends to outperform its initial projections, and we remain comfortable with our 2024 forecast that’s mildly above management’s outlook.
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