UnitedHealth Group (UNH) announced its third-quarter earnings this week. But, judging by the stock price action, it was hard to tell UNH had good news for shareholders.
UNH stock tumbled nearly 2.5% after the company’s announcement, but ended the trading day off 1.5%.
One analyst jokingly mused that he’d become a bit jaded by the regularity with which UNH knocked quarterly earnings out of the park. This time, however, UnitedHealth only beat earnings estimates by a penny.
However, UNH reaffirmed guidance for the year, stressing that management remains bullish about the future.
Part of the slowdown was the fact that, in earlier quarters UNH brought on new customers and watched revenue rise significantly. Now, those new customers are beginning to access medical care, forcing UnitedHealth to spend some of its cash pile for benefits coverage.
But, that’s to be expected, and it didn’t hurt the company; it simply slowed the vigorous growth. The top line still looks impressive: Revenue growth was up 26% for the quarter, and products (policies, etc.) were up a whopping 500%.
UnitedHealthcare Stock Leads the Pack
UNH is focused on building out its fast-growing Optum division, which is comprised of OptumHealth, OptumInsight and OptumRx. Health revenue was up 24% for the quarter, Insight was up 27% and Rx was up 80%.
Part of the reason Rx performed so strongly was the incorporation of the pharmaceutical services company Catamaran into OptumRx. This division now serves 65 million customers and has filled more than 1 billion prescriptions so far this year. The Catamaran inclusion also added a 29% jump in operating expenses, but for UNH stock those extra costs were certainly worth the impressive jump in revenue from the Rx division.
Now that most of the significant consolidation has been accomplished among the big healthcare insurers, it’s time to begin building out the networks. And UnitedHealth is leading that effort.
The UNH stock buyback program helped the bottom line in recent quarters. Management announced Thursday that the board has authorized another buyback program of $500 million, set to begin in January 2016.
Even after all of the changes this year, UNH stock has managed to gain 19% year to date. Plus, there’s a very good argument to be made that its biggest growth is yet to come.
Now that the industry turmoil is over, and the Affordable Care Act is a matter of law, it’s much easier to navigate the healthcare landscape. A more predictable environment will allow UNH to thrive.
UnitedHealthcare is certainly doing what it can for the economy as well. Management recently announced plans to hire 1,700 people near the UNH headquarters in the Twin Cities area, and another 1,000 people for remote work around the nation.
UNH stock remains a great long-term hold for any investor looking to participate in the healthcare arena over the next decade.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
