UnitedHealth Earnings Beat Expectations. The Stock Has Been on a Tear.

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Shares of the health insurer
UnitedHealth
Group were up early Friday after the company reported quarterly financial results that beat Wall Street expectations and created positive expectations for the rest of the managed-care sector.

The results are more good news for a company that has been on a roll since the summer, with shares up 17% since it last reported earnings in July. The stock was up another 1.4% in the premarket hours on Friday.

UnitedHealth is the first of its peers to report earnings this quarter, and its updates generally set the tone for the sector.
Cigna Group
(CI) shares were up 0.9% early Friday, while
CVS Health
(CVS) shares were up 0.9%.
S&P 500
futures were flat.

UnitedHealth
reported adjusted earnings of $6.56 a share for the third quarter, soundly beating the
FactSet
analyst consensus estimate of $6.32 per share.

Quarterly revenue came to $92.4 billion, up 14% from the same period a year earlier. Analysts had expected revenue of $91.4 billion.

The company’s medical loss ratio, or MLR—a closely watched number that reflects the proportion of healthcare premiums paid out to cover medical expenses—also came in better than analysts had expected. The MLR was 82.3% for the quarter, better than the 82.8% consensus estimate.

UnitedHealth also slightly raised its estimate for its full 2023 fiscal year adjusted net earnings, saying it now expects between $24.85 and $25 per share. Its previous estimate was for between $24.70 and $25 a share. The new guidance is slightly above the FactSet consensus estimate of $24.83 a share.

UnitedHealth didn’t discuss its expectations for the 2024 fiscal year in the news release disclosing the results. Investors will be listening for any details on the company’s expectations for next year on this morning’s investor call, which is scheduled for 8:45 a.m.

In July, investors went into UnitedHealth’s second quarter earnings worried that high utilization in its Medicare Advantage business would pull down the company’s performance. Instead, earnings for the second quarter came in well ahead of estimates, and the company’s MLR was in line with analyst expectations.

The second-quarter medical loss ratio was 83.2%, higher than the 81.6% in the same quarter last year, but not as high as investors had feared. The third-quarter MLR of 82.3% is up from 81.6% in the same quarter last year. The company cited high utlization of outpatient services by seniors in explaining the higher MLR.

The earnings come amid an investor frenzy over the potential impact of the new GLP-1 obesity drugs, with each day bringing a surge of worries about the drugs’ impact that drives a round of selloffs in some particular sector. UnitedHealth executives will more than likely face questions about their thinking on the GLP-1s, and how their plans will handle paying for the drugs.

Executives could also be questioned about their pharmacy benefit manager, OptumRx, amid increasing challenges to the PBM business model. In mid-August, shares of a number of insurers dropped as one regional nonprofit insurance company said it would largely stop using a PBM.

Write to Josh Nathan-Kazis at [email protected]

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