All Eyes on Medical Costs as UnitedHealth Prepares to Report Q3 Results
As the financial reporting season continues, UnitedHealth Group is set to unveil its third-quarter results early Tuesday, and investors are keenly focused on one primary question: Are seniors still opting for surgeries, or has there been a noticeable shift in healthcare consumption? This inquiry is particularly significant against the backdrop of UnitedHealth’s troubling fourth-quarter report from January, which hinted at an alarming increase in spending on Medicare Advantage plans. This situation has subsequently reverberated throughout the managed-care sector, leading to a substantial selloff from which many companies have yet to recover.
Impact of Medicare Advantage on Financial Performance
The January earnings report revealed that utilization rates among patients enrolled in Medicare Advantage surpassed even the most pessimistic forecasts. Consequently, this has instigated a complete re-evaluation of the Medicare Advantage business model among many organizations, including CVS Health and Humana, who had formerly banked on profitability from this government-funded initiative.
In direct response to these adverse trends, there has been a notable reduction in the availability of Medicare Advantage plans for the upcoming year, along with a marked scaling back of benefits across the board. While these adjustments are indicative of a broader industry correction, UnitedHealth appears to be navigating these waters with greater resilience than its competitors. Despite the broader S&P 500 index posting a robust 23% gain this year, UnitedHealth’s shares have seen a 15% increase. In contrast, CVS Health has experienced a 15% decline, while Humana has seen staggering losses exceeding 41%.
Looking Ahead: What Will Q3 Results Reveal?
Attention will be sharply fixed on UnitedHealth’s upcoming medical-cost report. Analysts are hopeful that if the results fall within anticipated figures, it could assuage concerns not only for UnitedHealth but for the managed care and broader healthcare sector. UnitedHealth is traditionally the first of its peers to disclose earnings in each quarter, thereby often setting a tone that resonates throughout the industry.
The current consensus among analysts has pegged earnings at approximately $7.00 per share, with an expected revenue of $99.1 billion, as reported by FactSet. It’s worth noting that by analyzing the medical cost ratio, which reflects the share of premiums used to cover medical expenses, expectations for this quarter hover around 84.4%. This figure indicates a considerable rise from the 82.3% reported in the same period last year, thereby drawing concern regarding elevated cost pressures.
The Fallout from Business Disruptions
Moreover, UnitedHealth faced additional challenges earlier this year when a significant hack of their payment processing platforms, operated by Change Healthcare, created significant disruptions within the healthcare ecosystem. This disruption affected the operational capacity of pharmacies, hospitals, and healthcare providers alike. In their July guidance, the company candidly acknowledged the financial implications of this breach, estimating a potential detriment of between $0.60 to $0.70 per share on annual earnings—a point that investors should closely analyze in the upcoming report.
Annual Outlook: What to Expect?
Looking from a broader perspective, UnitedHealth has previously indicated expectations of adjusted net earnings ranging between $27.50 and $28.00 per share for the entire 2024 fiscal year. Analysts appear to align with this guidance, with a consensus estimate siting at $27.69, bolstering confidence that the company can maintain some semblance of stability amidst challenging market dynamics.
Conclusion: Preparing for Market Reaction
In summary, as we look ahead toward UnitedHealth’s third-quarter earnings release, the intricate interplay of Medicare Advantage spending, operational disruptions from cybersecurity incidents, and the overall health of the managed-care sector will play pivotal roles in determining market sentiment. With its performance potentially setting the stage for reactions among competitors, all eyes will be on the results—offering critical insights not only about UnitedHealth but also the ongoing transformation within the healthcare services landscape.
