UnitedHealth Is Poised to Pass Its Earnings Checkup--Ahead of the Tape
January 16 2017 - 12:32PM
Dow Jones News
By Charley Grant
At a moment of uncertainty for health insurers, there appear to
be few risks to UnitedHealth Group Inc.'s strong long-term
performance.
The country's largest publicly traded health insurer by market
value will report fourth-quarter results on Tuesday. Analyst
consensus calls for sales of $47.4 billion and adjusted earnings
per share of $2.07, according to FactSet. There shouldn't be too
much drama in the headline numbers. UnitedHealth has lagged behind
the earnings consensus just one time since the fourth quarter of
2011.
What UnitedHealth will say about its business prospects, and
those of the industry, is far less certain. The report will come
less than a week after the Senate took the first step toward a
repeal of the Affordable Care Act. It is anyone's guess at this
point just what would replace President Barack Obama's signature
law should it eventually be scrapped.
Meanwhile, the industry is waiting to see whether two planned
megamergers will close. The Justice Department has sued to block
Aetna Inc.'s planned tie-up with Humana Inc., as well as Anthem
Inc.'s proposed deal with Cigna Corp.
The good news for UnitedHealth investors is those issues
shouldn't have much of a direct impact on the company's financial
performance.
At last count, more than two-thirds of UnitedHealth's members
came from employer groups, rather than through government programs
such as Medicare and Medicaid. UnitedHealth has the smallest public
exchange business of any major publicly traded insurer and has been
scaling back its presence in that market since 2015. Meanwhile, the
company hasn't eschewed acquisitions altogether; it recently
announced a $2.3 billion purchase of Surgical Care Affiliates Inc.,
an outpatient surgery center company.
But that proposed transaction won't trigger the antitrust
concerns or thorny integration issues that its rivals face.
Perhaps the biggest investment risk is the stock's long run of
success. Its shares have more than tripled over the past five years
and now trade at 17 times forward earnings. That is close to a
10-year high.
UnitedHealth's lofty valuation eventually could pose a problem
for shareholders if years of robust business growth begins to
stall. But that risk is, for now, a hypothetical one. Sales rose
more than 11% in the third quarter from a year earlier.
Given that backdrop, the prospect of Tuesday's checkup shouldn't
raise investors' blood pressure.
Write to Charley Grant at charles.grant@wsj.com
(END) Dow Jones Newswires
January 16, 2017 12:17 ET (17:17 GMT)
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