UnitedHealth Group’s (UNH) first quarter 2010 earnings of $1.03 per share far exceeded the Zacks Consensus Estimate of 68 cents. This was also ahead of last year’s earnings of 81 cents. The strong showing was driven by better-than-expected membership and services growth.
 
Total revenue for the reported quarter climbed to $23.19 billion from $22 billion in the year-ago quarter. The increase was primarily driven by an increase in premium revenues in the Health Benefits segment.
 
Health Benefits revenues climbed 5 % year over year to $21.6 billion. The increase was primarily driven by the growth of a million members across the public and senior markets in the past year and rate increases reflecting underlying medical cost trends. The rise was partially offset by the 900,000 members decline in the commercial benefits market, primarily reflecting the significant decline in US employment over the past year.
 
The health insurer benefited from the increased enrollment in Medicare Advantage and its active Medicare supplement products in the quarter. Furthermore, the company also reported growth in its stand-alone Part D prescription drug plans. At the end of the reported quarter, 4.5 million people participated in the plans, which reflected a year-over-year increase of 240,000 members. Moreover, 145,000 members were added to its Medicaid programs in the reported quarter.
 
Medical costs during the reported quarter increased approximately 3.6% year over year to $17.2 billion. Total operating cost during the quarter increased approximately 4.1% year over year to $21.2 billion. UnitedHealth reported cash flows from operations of $1.2 billion for the reported quarter.
 
2010 Outlook Raised
 
The health insurer now expects to earn in the range of $3.15 – $3.35 per share in 2010. The prior guidance was in the range of $2.90 – $3.10. The Zacks Consensus Estimate for fiscal 2010 is $3.06 per share.
 
UnitedHealth Group projects 2010 revenues to come in at approximately $92 billion. Furthermore, cash flows from operations for 2010 are expected in the range of $4.4 billion – $4.8 billion. As per the previous guidance issued by the company cash flows from operations were expected in the range of $4.0 billion – $4.4 billion.
 
UnitedHealth Group is one of the most diversified of the listed managed care companies. With a broad product and service offering, the company targets the full spectrum of the population. Though the market remains challenging, we expect the company’s revenues to grow in the coming quarters.
 
Our Recommendation
 
We currently have a Neutral outlook on UnitedHealth Group in the long-term implying that it will perform in line with the overall U.S. equity market over the next six to twelve months. We advise investors to retain the stock over the time period.
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