The second quarter is shaping up to be a unique one largely because of the challenging economic environment that companies have had to operate in over the past 12 months, and as such the Q2 earnings season has peaked investors’ interest more than usual. One of the companies due to report their earnings tomorrow at the opening bell is UnitedHealth Group (NYSE: UNH).
UnitedHealth Group is a multinational company from America, Minnesota and is considered a major player in the health sector globally. Primarily the company offers health care products and insurance services to its clients and has become the world’s eighth largest company by revenue and second-largest healthcare company behind CVS Health by revenue, and the largest insurance company by net premiums.
Expectations
UnitedHealth is set to beat the market’s expectations when they release their earnings and revenue, and this growth is driven by factors such as increased contribution of the Optum Health business as well as steady growth in their private health insurance and pharmacy management businesses. Factors that could cap gains remain, and chief among those in the post-pandemic recovery is a rise in the sheer number of medical procedures that have been put off during the pandemic; these could affect the company’s medical cost ratio, which will have a direct influence on earnings growth.
Source:https://www.trefis.com/stock/unh/articles/541617/what-to-expect-from-unitedhealths-q2/2022-07-12
With an economy on the move again since pandemic lows, the pharmacy management and health insurance businesses are expected to see sales growth; which feeds into the estimations from Trefis for the company’s revenues to be roughly $79.9 billion, which is slightly more than the consensus estimate of $79.7 billion.
Factors driving Q2 growth are:
- Rising US employment levels which are coming back to pre-pandemic levels. UnitedHealth’s employer-sponsored plans will be one of the driving forces in sales growth.
- Optum Health, which provides care through local medical groups, has seen substantial growth over the recent quarters, a trend expected to continue in the near term which will feed directly into increased revenues.
- The strong growth in the Optum Health business is stemming from an increase in the number of patients served under the company’s value-based arrangements, including at-home services
- UnitedHealth’s acquisition of two health-Tech companies for a joint amount of $9.5 billion, will enhance UnitedHealth’s IT services and help UNH significantly upgrade its technology, including streamlining the company’s administrative and payment processes.
Earnings per share
Earnings per share from the company are expected to be higher than estimated, coming in at $5.25 according to Trefis analysis, slightly above the consensus estimate of $5.20. For the entire year there is an expected earnings per share of $21.85, which is slightly higher than the previous year’s earnings per share of $19.02. The adjusted net income from Q1 represented an increase of 3% from the preceding quarter, coming in at $5.2 billion.
UnitedHealth Group’s valuation is estimated to be around $550 per share, which comes in at 6% above the market price currently, and this constitutes a forward P/EBITDA multiple of 5x for UNH, which makes the stock reasonably priced at current levels, so a buy could be better served if a pullback were to happen first. However, if Q2 results are more upbeat and provide a better figure than estimated, its likely that the P/EBITDA multiple will be revised upwards, which means higher levels for the stock to potentially hit.
Technical Analysis (H4)
In terms of market structure, the price exited the descending channel and purged weak holders around the $450 area before making a move up in an impulsive wave. Since then, the price has been locked in a range between $487-$531. This range can be viewed in the context of a potential bull flag, which points towards the probability of a break to the upside beyond the high of this current minor structure, where buyers will challenge the $550 area. A break below the range could see the price move to challenge the mid $400 area.
Sources:
https://www.nasdaq.com/articles/what-to-expect-from-unitedhealths-q2
https://www.trefis.com/stock/unh/articles/541617/what-to-expect-from-unitedhealths-q2/2022-07-12
https://finance.yahoo.com/news/unitedhealth-q2-preview-earnings-streak-215509633.html
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Ofentse Waisi
Market Analyst
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