UnitedHealth (UNH) A Bit Under The Weather After Issuing Mixed FY22 Outlook
2:10 pm Tuesday, November 30th, 2021
Bolstered by strong growth across its Optum platform, United Health (NYSE:UNH) has produced solid and consistent financial results throughout the pandemic, and in tandem, its stock has more than doubled since March of 2020.
After the company issued a mixed FY22 outlook last night, though, the stock was ailing a bit as downside EPS guidance prompted investors to lock in some gains. In its press release, UNH didn’t elaborate on what factors may pressure its earnings next year, but we surmise that a combination of COVID-related uncertainties and potentially higher elective care costs could be weighing on its forecast.
On the positive side, the company slightly lifted the low end of its FY21 EPS guidance to $18.75 from $18.65, while maintaining an outlook of $18.90 at the high end. Additionally, UNH’s revenue outlook for both FY21 and FY22 is solid at $287 bln and $317-320 bln, respectively, edging out the $286 bln and $311 bln consensus estimates.
While investors typically gravitate toward UNH for its steady financial performance and dividend, its top-line growth has accelerated recently, reaching 11% last quarter and 15% in Q2. In its core UnitedHealthcare segment, membership sign-ups are gaining steam, especially in Medicare Advantage, Medicaid, and Dual Special Needs plans. In Q3, the company added 790,000 new members, bringing total new member additions to nearly 2.0 mln since the end of 2020.
In our view, the key growth engine that has really ignited UNH’s performance, and its stock, is the Optum platform. This business is comprised of three segments — OptumHealth (access to networks of specialists), OptumInsight (software/information products), and OptumRX (pharmacy care services) — and is steadily becoming a larger piece of UNH’s total business. Last quarter, the combined Optum platform comprised 54% of the company’s operating earnings as OptumHealth’s earnings jumped by 37% yr/yr.
With the pending acquisition of healthcare technology company Change Healthcare (CHNG), the Optum business is poised for further expansion.
Since UNH’s Optum business and CHNG announced plans to combine last January, the deal has been hung up by regulatory issues; the Department of Justice has reportedly considered blocking the acquisition. However, during the Q3 earnings conference call on October 14, COO Dirk McMahon stated that he expects the deal to close in the first part of 2022, which should provide a boost to earnings next year. When the acquisition was announced, UNH estimated that it would be accretive to adjusted EPS by $0.50 in 2022.
