New leadership and earnings beat propel unprecedented UnitedHealth stock move


After reporting a strong third quarter and debuting its new chief executive officer, UnitedHealth Group stock surged 6.6% in extremely heavy trade, putting the company on track for its biggest one-day price gain in the 33 years that it has been a public company.

UnitedHealth reported better-than-expected third-quarter earnings on Tuesday and raised its 2017 earnings guidance for the third time this year. The company now expects 2017 earnings-per-share to approach $9.45, above the FactSet consensus of $9.32, and adjusted net earnings to approach $10.00, above the FactSet consensus of $9.43.

Read: UnitedHealth Group reports Q3 earnings beat, revenue miss

The latest performance is especially noteworthy given the political tumult that continues to surround the Affordable Care Act, also called Obamacare, under President Donald Trump. UnitedHealth exited most of the ACA’s exchanges this year, and its short-term insurance plans are expected to benefit from a new executive order.

UnitedHealth “emerges from the chaos stronger than ever,” said BMO Capital Markets analyst Matt Borsch, who rates the company outperform with a $250 price target.

That move did, however, come with some financial cost. Included in the company’s third-quarter revenue, which came in below the FactSet consensus, was $1.6 billion less in year-over-year consolidated revenues related to the company’s high-profile withdrawals from ACA markets. The company also reported the negative impact of the health insurance tax, which is part of the ACA and has been delayed until next year.

UnitedHealth reported a beat despite those factors, “which likely means a positive read-through for 2018 despite the return of the [health insurer fee],” said Mizuho analyst Sheryl Skolnick, who rates the company buy with a $235 price target. “CEO David Wichmann can stand on this performance, we think, and deliver a strong and confident debut.”

Related: UnitedHealth earnings: Insulated from Obamacare, Amazon and still going strong

Despite its ACA exit, the health insurer’s stock has previously been hit by the political chaos surrounding the health law, including the most recent attempt at repeal and an announcement by Trump that he will stop paying the ACA’s cost-sharing reduction payments to insurers.

Any impact of the CSR payments being withheld is expected to be “extremely small,” Wichmann said Tuesday.

The company has a “very limited exchange presence — about 30,000 people in four states who are CSR eligible,” he said, according to the FactSet transcript. In addition, “we submitted plans for 2018 both with and without the CSR payments.”

The health insurance tax is the biggest factor expected to affect UnitedHealth next year, Wichmann said, and it should translate to about 75 cents per share in year-over-year earnings headwind.

Read: Trump announcing end to cost-sharing payments slams insurers, hospitals

UnitedHealth’s major stock move Tuesday also suggests investor confidence in Wichmann, who replaced longtime CEO Stephen Hemsley in September after decades at the health insurer, including a term as chief financial officer.

But investors are also looking at the performance of the company’s various businesses.

UnitedHealth’s pharmacy-benefit manager unit, Optum, has emerged as a strong performer, including in the third-quarter. Optum revenues increased by 8% year-over-year, UnitedHealth said Tuesday.

Although the three recent U.S. hurricanes accounted for lost revenue for Optum due to less use of its services and direct damage to the business, “it ended up being not material to our overall performance,” Wichmann said.

In addition, while many pharmacy-benefit managers are expected to be hurt by a possible Amazon move into the sector, Optum may be buffered from the competition.

Asked about an Amazon entry, Optum’s CEO John Prince said that Optum’s model is differentiated from other pharmacy-benefit managers, adding that “we’re willing to partner with anybody that drives value, decreases costs and also improves the consumer experience.”

Read more: Is Amazon getting into the pharmacy business? This is what you need to know

UnitedHealth has also become “the indisputable industry leader in managed care,” said BMO Capital Markets’ Borsch. The company said it had a 17% increase in revenue related to Medicare products, including managed care Medicare Advantage plans, and medical benefit products for seniors.

Now, all eyes are on 2018.

Though UnitedHealth didn’t give specific guidance, Wichmann said on Tuesday that adjusted earnings should be “within a typically-sized range,” according to the FactSet earnings transcript, “with the top side of that range in line with the current market consensus for 2018.” The FactSet earnings consensus for 2018 adjusted earnings is $10.39 per share.

UnitedHealth shares have surged 10.6% over the last three months, compared with a 3.9% rise in the S&P 500

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