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Medicare Advantage has been lucrative for UnitedHealth and other insurers in recent years.
Courtesy of UnitedHealthcare
When
UnitedHealth Group
releases results on Friday, investors will be looking for reassurance after a company executive spooked the market last month by talking about high utilization and costs in the Medicare Advantage business.
These comments,
UnitedHealth
It is
(ticker: UNH) CFO in mid-June sparked a sell-off in managed care names. “There are indications that this looks a bit like pent-up demand or delayed demand satisfied,” Chief Financial Officer John Rex said at the time.
The message was that spending would be high in Medicare Advantage, a private version of Medicare that has become popular with seniors and hugely lucrative for insurers in recent years. Companies like UnitedHealth have rushed into the Medicare Advantage market, competing for the large payments the government is offering to insure Americans over 65.
Higher spending on Medicare Advantage care in the quarter would mean lower earnings in the company’s Medicare Advantage business, and UnitedHealth Group shares fell 6.4% on June 14 comments. Other managed care companies with significant Medicare Advantage businesses also fell, including
humane
(HUM), which was down 11.2% that day.
Some analysts covering UnitedHealth have since cut their second-quarter earnings estimates. THE
set of facts
The consensus analyst estimate points to earnings of $6.01 per share for UntiedHealth in the second quarter and sales of $90.7 billion.
Lower Medicare Advantage revenue could impact the entire tightly integrated business. UnitedHealth’s Optum Health employs physicians who care for Medicare Advantage patients, some of them under arrangements where Optum receives a lump sum payment for each patient, rather than payments for each service. Higher utilization could weigh on Optum, in addition to dampening the insurance division.
UnitedHealth shares are down 15.6% this year. The stock fell 2.4% on Wednesday, amid jitters ahead of earnings.
“We suspect any softness will be mitigated by stock buybacks, cost cuts or other levers UNH may pull to support results, although ‘ugly earning’ may not support P expansion. / E,” Raymond James analyst John Ransom wrote in a note posted early. Wednesday.
The company is expected to report results before market open on Friday. He scheduled an investor call for 8:45 a.m. Eastern Time on Friday. The shares are trading at 17.5 times expected earnings over the next 12 months, according to FactSet. It’s above
humane
It is
valuation of 14.5 times expected earnings over the next 12 months.
UnitedHealth stocks are underperforming the healthcare sector this year and the market in general. THE
SPDR Healthcare Sector Fund
(XLV) is down 4.5% this year, while the
S&P500
is up 17.5%.
Write to Josh Nathan-Kazis at josh.nathan-kazis@barrons.com