Morningstar

UnitedHealth Reports Strong Second Quarter

We are not making any changes to our 2020 outlook and fair value estimate for the narrow-moat company.

Securities In This Article
UnitedHealth Group Inc
(UNH)

Narrow-moat UnitedHealth Group UNH reported strong second-quarter operating results that included an earnings beat on delayed elective procedures and routine care related to the COVID-19 crisis. Despite that bottom-line strength, management maintained its guidance for 2020, which reflects the potential for some delayed care to work its way back into the system as well as extra potential costs associated with efforts to contain the pandemic. Overall, UnitedHealth's results and outlook remain solid, and our fair value estimate is unchanged.

UnitedHealth significantly beat Capital IQ consensus on the bottom line but missed on the top line. Adjusted earnings per share were $7.12, nearly double the year-ago quarter and well above consensus of $5.24. This beat related to the significantly lower medical utilization costs related to the COVID-19-related shutdown during the period. Management continues to expect adjusted EPS of $16.25-$16.55 for the year, though, as some of those costs will work their way back into the system by the end of the year. The company also estimates that it will make rebate payments to clients of about $1 billion this year in addition to its ongoing customer/consumer relief ($1.5 billion) and caregiver assistance ($2 billion) programs.

A weak top line could hamper profitability eventually. During the quarter, the company turned in only $62.1 billion of revenue compared with consensus of $63.5 billion. The insurance operations grew only 1% year over year, as the employer and individual division declined 8% year over year related to the massive layoffs that resulted in a 2% decline in commercial members year over year. The company's government-sponsored plans helped offset the employment-sensitive operations, but only mildly. This dynamic may constrain the company's results if layoffs are sustained in the near term. However, we expect UnitedHealth's longer-term growth trajectory to remain intact.

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About the Author

Julie Utterback, CFA

Senior Equity Analyst
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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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