(UNH) UnitedHealth Group Beats on Higher Revenue

UnitedHealth Group Inc. (UNH) reported its third quarter 2012 earnings of $1.50 per share, significantly ahead of the Zacks Consensus Estimate of $1.31 per share. Higher revenue across the board, strong enrollment growth, partially offset by higher operating costs were responsible for the better-than-expected results. Also, share repurchases boosted bottom-line earnings.

The company posted revenues of $27.3 billion, an increase of 8.0% year over year, led by higher premiums and escalated product revenue in the health benefits business (UnitedHealth Care), coupled with strong revenue growth at the service segment.

UnitedHealth’s medical costs expanded 5.8% year over year to $19.5 billion. Total operating costs increased 6.5% year over year to $24.7 billion.

Segment performance

During the reported quarter, UnitedHealth’s health benefits segment – UnitedHealthcare – witnessed revenue growth of 8.0% year over year to $25.5 billion. Earnings from operations also jumped 26% to $2.2 billion.

Revenue from the company’s other segment – the health services segment branded as Optum – remained unchanged year over year at $7.2 billion. Earnings from operations, however, surged 28% year over year to $408 million. The company is aggressively expanding this segment in order to diversify its earnings. It expects Optum to contribute more than 30% of the earnings mix.

Membership Enrollment

UnitedHealth showed strong enrollment trends through its membership expansion across all major business lines, led by the recent acquisitions. Total commercial enrollment was up 4.3% year over year and 2% sequentially.

Medicaid inched up 1.8% sequentially and 11% year over year, whereas Medicare Advantage hiked 1.4% sequentially and escalated 18.1% year over year.

Capital Position

UnitedHealth continues to maintain a healthy balance sheet, concluding the quarter with a debt-to-capital ratio of 30%, unchanged relative to prior quarter. Days sales outstanding were 8 days, at par with the prior-year quarter. Days claims payable (DCP) were 49 days, up 2 days on a year-over-year basis.

Share Repurchases and Dividend

During the quarter, the company paid a quarterly dividend of 21.25 cents per share. It repurchased 48 million shares for $2.6 billion through the first nine months of 2012.

2012 Guidance Update

Backed by better-than-expected earnings, management raised its fiscal 2012 earnings estimates to a range of $5.20–$5.25 per share from $4.90–$5.00 per share.

Following the end of the quarter, UnitedHealth announced the big acquisition of Amil Participacoes S.A. of Brazil for $4.3 billion. The company is aggressively expanding its international business to offset the stringent regulatory pressures back at home.

UnitedHealth’s peers such as Aetna Inc. (AET), CIGNA Corp. (CI), WellPoint Inc. (WLP), Humana Inc. (HUM) are all expected to release their third quarter earnings shortly.

UnitedHealth currently retains a Zacks #2 Rank, which translates into a short-term Buy rating. We are also maintaining our long-term ‘Neutral’ recommendation on the shares
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