Higher Optum Revenues To Drive UnitedHealth (UNH) Q4 Earnings

We believe UnitedHealth Group Inc.’s (NYSE:UNH) health services business named, Optum, will be a key driver for fourth-quarter earnings. Notably, Optum serves the global health care marketplace including payers, care providers, employers, governments, life sciences companies and consumers.

The company is investing in this segment with an aim to diversify earnings and seek protection from the highly regulated health services business, which has been significant for the company. Its revenue CAGR of 21% from 2011 to 2017 (on the basis of expected revenues) is impressive. Per the Zacks Consensus Estimate, revenues from this segment would be $23.98 billion, which translates into year-over-year growth of 8.2%.

Revenue growth from this segment is expected to be driven by increased contribution from each of its sub-segments namely OptumHealth, OptumInsight and Optum Rx.

At OptumHealth, the top line should be aided by growth and market expansion in care delivery as well as increase in consumer health engagement products and services, behavioral health services and health financial services. Also, rise in number of consumers served and an improvement in average revenue per consumer will contribute to the segment’s revenues. Per the Zacks Consensus Estimate, revenues of $5.4 billion represents 18.8% growth year over year.

Meanwhile OptumInsight’s revenues will see accretion from growth in business process management services and data analytics. In fact, this segment has been witnessing an increase in revenue backlog, which reflects strong demand for its solutions. The trend is expected to continue in the fourth quarter as well. The Zacks Consensus Estimate for revenues is pegged at $2.24 billion, up 7.9% year over year.

OptumRx, the company’s pharmacy management arm, has achieved sufficient scale in the PBM business from the acquisition of pharmacy benefit manager — Catamaran — in 2015. Revenues in this segment have been increasing over the past many quarters owing to acquisitions and organic growth. In the fourth quarter, we expect revenue growth from a surge in adjusted script grown. The Zacks Consensus Estimate for the fourth-quarter revenues is pegged at $16.5 billion, up 4.1% year over year.

UnitedHealth’s solid market share, growing Optum business, diversified premium revenue and disciplined capital management are also anticipated to aid overall earnings. (Read more:Robust Revenues to Drive UnitedHealth's Q4 Earnings).

Zacks Rank and Stocks That Warrant a Look

UnitedHealth carries a Zacks Rank #3 (Hold). Here are a few companies worth considering with the right combination of elements to deliver an earnings beat this quarter:

Centene Corp. (NYSE:CNC) is expected to report fourth-quarter earnings performance on Feb 6. The company has an Earnings ESP of +0.25% and a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Anthem Inc. (NYSE:ANTM) has an Earnings ESP of +1.36% and a Zacks Rank #2 (Buy). The company is expected to release fourth-quarter earnings results on Jan 31.

Humana Inc. (NYSE:HUM) has an Earnings ESP of +2.5% and a Zacks Rank #2. The company is expected to announce fourth-quarter earnings results on Feb 7.

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