UnitedHealth shares jumped after high earnings estimates despite rising medical costs

UnitedHealth Group’The company’s stock price moved higher on Friday after the healthcare conglomerate reported second-quarter revenue and adjusted earnings that beat Wall Street expectations despite rising medical costs.

The results eased investor concerns after the Minnesota-based company reported increased demand for non-urgent surgery and outpatient services last month and spooked the market.

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UnitedHealth Group is the largest healthcare company in the United States by market capitalization and revenue, and is even larger than the nation’s largest banks. Given its size, UnitedHealth Group is considered a benchmark for the broader health insurance industry. Its market value was around $447 billion as of Friday afternoon.

Here’s what UnitedHealth Group reported compared to Wall Street’s expectations, based on a survey of Refinitiv analysts:

• Earning per share: $6.14 adjusted versus $5.99 expected
• Income: $92.9 billion versus $91.01 billion expected

UnitedHealth Group reported net income of $5.47 billion, or $5.82 per share, for the quarter. That compares to $5.07 billion, or $5.34 per share, for the same period a year ago. Excluding certain items, the company’s adjusted earnings per share were $6.14 for the period.

The company reported total revenue of $92.9 billion for the quarter, up 16% from the same period a year ago. That excludes $33.6 billion in “eliminations,” which are payments from the company’s UnitedHealthcare business to its other division, Optum. UnitedHealth Group cannot record these transactions as revenue because it is paying for itself.

UnitedHealthcare, which provides insurance coverage and retirement services to more than 50 million people, reported second-quarter revenue growth of 13 percent from a year ago to $70.2 billion.

The company’s other platform, Optum, reported revenue up nearly 25% from a year ago to $56.3 billion. Optum provides health care services and operates one of the largest pharmaceutical benefit managers, or brokerages that negotiate drug discounts with drug manufacturers on behalf of health insurers and large employers.

Optum’s growth was aided in part by UnitedHealth Group’s approximately $8 billion acquisition of healthcare technology company Change Healthcare.

It was also driven by a more than 900,000-year increase in the number of patients assisted by Optum’s healthcare services business under value-based care agreements.

UnitedHealth Group raised the low end of its full-year adjusted earnings outlook to $24.70 to $25.00 per share, from a previous forecast of $24.50 to $25.00 per share.

The ratio between the company’s medical costs and the percentage of claims paid to premiums stood at 83.2%. Analysts had estimated the ratio would be 83.3% for the quarter, according to FactSet.

The medical cost ratio increased by almost 2% compared to the same period a year ago. UnitedHealth Care said this was driven by the previously noted increase in elective surgeries and outpatient care activity, primarily among older adults.

“To illustrate, in the second quarter, outpatient care business among seniors was a few hundred basis points above our expectations,” UnitedHealth Group CFO John Rex said on an earnings call.

Rex noted that much of that care comes from seniors who are receiving heart procedures and hip and knee replacements at outpatient clinics, reiterating his earlier remarks at the Goldman Sachs health conference last month.

UnitedHealth Group expects the medical cost ratio “to be slightly lower” in the third quarter than in the second quarter, Rex said on the call.

He added that the company also expects the medical cost ratio in the third quarter to be “marginally higher” than it will be in the fourth quarter, noting that that was “just a factor of seasonality.”

But overall, the company expects the “overall pace of the care business to remain consistent,” according to Rex.

Insurance companies have benefited in recent years from a delay in non-urgent procedures due to hospital staff shortages and the pandemic, which has seen hospitals inundated with Covid patients. Hospitals at that time were widely considered too risky to enter for elective procedures.

But UnitedHealth Group executives have indicated the trend could be reversed.