UnitedHealth Group’Shares jumped on Friday after the healthcare conglomerate reported second-quarter revenue and adjusted earnings that beat Wall Street expectations despite rising medical costs.
The results eased investor concerns after the Minnesota-based company saw a surge in demand for non-urgent surgeries and outpatient services last month and spooked the market.
Shares of UnitedHealth closed up more than 7% Friday. However, the stock is down more than 9% so far this year.
UnitedHealth Group is the largest healthcare company in the US by market capitalization and revenue, and is even larger than the nation’s largest banks. Given its size, UnitedHealth Group is considered a leader in the broader health insurance sector. Its market value was about $447 billion at Friday’s close.
Here’s how UnitedHealth Group reported compared to Wall Street expectations, based on a survey of analysts by Refinitiv:
- Earnings per share: $6.14 adjusted vs. $5.99 expected
- Income: $92.9 billion vs. $91.01 billion expected
UnitedHealth Group reported net income of $5.47 billion, or $5.82 per share, for the quarter. That compares with $5.07 billion, or $5.34 per share, in the same period a year ago. Excluding certain items, the company’s adjusted earnings per share were $6.14 for the period.
The company reported total revenue of $92.9 billion for the quarter, up 16% from the same period last year. That excludes $33.6 billion in “eliminations,” which are payments from the company’s UnitedHealthcare business to its other division, Optum. UnitedHealth Group cannot record these transactions as revenue because it pays itself.
UnitedHealthcare, which provides insurance coverage and social services to more than 50 million people, reported a 13% increase in revenue in the second quarter from a year earlier to $70.2 billion.
The company’s other platform, Optum, saw revenue increase nearly 25% year-over-year to $56.3 billion. Optum offers healthcare services and operates one of the largest pharmacy managers, or intermediaries, that negotiate drug discounts with drug manufacturers on behalf of health insurance companies and large employers.
Optum’s growth was helped in part by UnitedHealth Group’s acquisition of health technology company Change Healthcare for about $8 billion.
It was also driven by a more than 900,000 annual increase in the number of patients served by Optum’s health services business under value-based care arrangements.
UnitedHealth Group raised the lower end of its full-year adjusted earnings forecast to $24.70 to $25.00 per share, from a previous forecast of $24.50 to $25.00 per share.
The company’s medical expense ratio — the percentage of claims paid out compared to premiums — stood at 83.2%. Analysts had estimated that ratio to be 83.3% for the quarter, according to FactSet.
The medical expense ratio was up nearly 2% from the same period last year. UnitedHealth Care said this was due to previously noted growth in elective surgeries and outpatient activity, primarily among seniors.
“To illustrate, in the second quarter, ambulatory care activity among seniors was several hundred basis points above our expectations,” UnitedHealth Group CFO John Rex said on an earnings call.
Rex noted that much of that care comes from seniors getting heart procedures and hip and knee replacements in outpatient clinics, echoing his earlier remarks at a Goldman Sachs healthcare conference last month.
UnitedHealth Group expects the medical expense ratio to “be a little lower” in the third quarter compared to the second quarter, Rex said on the call.
He added that the company also expects the medical expense ratio in the third quarter to be “marginally higher” than it will be in the fourth quarter, noting that this is “simply a factor of seasonality.”
But overall, the company expects “the overall pace of care to remain consistent,” according to Rex.
In recent years, insurance companies have benefited from delays in non-urgent procedures due to hospital staff shortages and the pandemic, which has flooded hospitals with Covid patients. Hospitals at the time were considered too risky to enter for elective procedures.
But UnitedHealth Group executives indicated the trend could be reversed.