UnitedHealth 4Q Sales Top Street Estimates Driven By Optum Business

UnitedHealth Group reported better-than-expected fourth-quarter results despite a spike in pandemic-led healthcare costs.

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The healthcare giant’s 4Q sales rose 7.5% to $65.5 billion year-on-year, exceeding consensus estimates of $65.1 billion. Shares closed at $350.84 on Jan. 20. UnitedHealth (UNH) posted 4Q adjusted earnings of $2.52 per share, which beat analysts’ estimates of $2.40 per share. The company’s 4Q net EPS (earnings per share) of $2.30 fell from the $3.68 posted during the same quarter last year. Its adjusted EPS of $2.52 per share declined from $3.90 in 4Q19.

This decline in earnings per share was largely related to higher healthcare costs due to Covid-19, the company said.

For FY20, revenue rose 6% to $257.1 billion year-on-year, led by a 21% uptick in sales at its Optum business. Optum is UnitedHealth’s information technology-enabled health services business that serves different dimensions of the healthcare system including care providers, life sciences companies, and consumers. (See UNH stock analysis on TipRanks)

UnitedHealth’s CEO, David S. Wichmann, commented, “We are grateful for the human spirit and resolve of our people, including our 125,000 clinicians who, with other frontline health care workers, demonstrated extraordinary collaboration, compassion and innovation.”

The company affirmed its FY21 earnings outlook and expects net earnings of between $16.90 to $17.40 per share and adjusted net earnings of between $17.75 to $18.25 per share. According to UnitedHealth, this outlook includes a negative impact of approximately $1.80 per share due to Covid-19 that included testing and treatment costs and people deferring healthcare in 2020.

Following the 4Q results, Oppenheimer analyst Michael Wiederhorn reiterated a Buy rating on the stock and set a price target of $375.

“The company’s Optum business is a nice complement to its core managed care operations and continues to account for a large share of earnings,” Wiederhorn commented in a note to investors. Furthermore, UNH’s vertical integration strategy strengthens the company’s competitive positioning across many areas of the healthcare landscape.”

Overall, analysts are bullish about the stock and the consensus is a Strong Buy with 16 analysts suggesting a Buy and 2 analysts recommending a Hold. The average price target of $396.44 implies 13% upside potential to current levels.