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UnitedHealth earnings ease investor worries over flu season, stock up

By Caroline Humer and Tamara Mathias
The logo of Down Jones Industrial Average stock market index listed company UnitedHealthcare is shown in Cypress, California April 13, 2016. REUTERS/Mike Blake

By Caroline Humer and Tamara Mathias

(Reuters) - UnitedHealth Group Inc <UNH.N>, the largest U.S. health insurer, on Tuesday reassured investors that the pervasive flu season did not crimp first-quarter earnings as had been feared, boosting its shares as well as those of rivals.

The insurer's quarterly profit beat estimates as it kept medical costs within estimates and it raised its 2018 outlook.

Shares of UnitedHealth rose 3.1 percent to $237.46 and boosted other stocks in the sector on hopes that rivals would also release robust results over the next few weeks.

“UnitedHealth certainly sets the tone for the group ... investors tend to look at United as the bellwether for the other companies,” Cantor Fitzgerald analyst Steven Halper said.

Anthem Inc <ANTM.N> rose 2.3 percent at $230.48, Humana Inc <HUM.N> was up 2.4 percent at $296.80 and Cigna Corp <CI.N> added 1 percent at $175.48 after rising as high as $177.81.

Leerink analyst Ana Gupte said UnitedHealth's report eased Wall Street's worries about the impact of the bad flu season, which raised insurer costs as more patients visited doctors and were admitted to the hospital.

Other potential negatives for UnitedHealth - such as federal regulation of the pharmacy benefit management business, drug pricing reform and the feared entry of Amazon.com Inc <AMZN.O> into the pharmacy distribution business - have not materialized.

"None of that seems to be happening," Gupte said.

One of UnitedHealth's first-quarter strengths was its ability to control medical costs. The medical care ratio, or the percentage of premiums paid out for medical services, improved to 81.4 percent from 82.4 percent a year earlier.

The company expects to keep the ratio at 81.5 percent in 2018, plus or minus 50 basis points, its chief financial officer said on a conference call.

PROFIT TOPS ESTIMATE

UnitedHealth raised its 2018 adjusted earnings forecast to a range of $12.40 to $12.65 per share from $12.30 to $12.60.

Aside from its large health insurance division, UnitedHealth has other businesses, such as Optum, which includes its pharmacy benefit manager, data analysis and physician groups.

UnitedHealth has added more doctors, urgent care centers and surgery centers via acquisitions, which helped drive growth during the first quarter.

The expansion of the noninsurance businesses comes as the healthcare industry addresses annual increases in costs for medical services and pharmaceuticals by moving services out of more expensive hospitals into less expensive settings, such as clinics.

Other insurers have proposed deals that would allow them to compete with UnitedHealth in these areas.

Aetna Inc <AET.N> is expected to be bought for $69 billion by CVS Health Corp <CVS.N>, the pharmacy chain and benefit manager, and smaller rival Cigna Corp <CI.N> has proposed acquiring Express Scripts Holding Co <ESRX.O>, the largest U.S. independent pharmacy benefit manager, for $54 billion.

UnitedHealth's net earnings rose to $2.84 billion, or $2.87 per share, in the first quarter ended March 31 from $2.17 billion, or $2.23 per share, a year earlier.

Excluding items, the company earned $3.04 per share while total revenue rose 13.3 percent to $55.19 billion.

Analysts, on average, expected earnings of $2.89 per share on revenue of $54.86 billion, according to Thomson Reuters I/B/E/S.

(Reporting by Caroline Humer in New York and Tamara Mathias in Bengaluru; Editing by Shounak Dasgupta, Anil D'Silva and Jeffrey Benkoe)