
UnitedHealth Beats Earnings Estimates Amid Retreat From ACA Exchanges
Shares of UnitedHealth Group (UNH) - Get Report ticked higher on Tuesday morning as momentum within its Optum business proved to be among various things to outweigh the pressure facing the U.S. health insurer's exchange business in recent weeks.
The Minnetonka, Minn., company posted first-quarter earnings per share of $1.81 before the opening bell Tuesday, exceeding the Street's consensus of $1.72. Revenue during the quarter ended March 31 came in at about $44.53 billion, north of analysts' expectations of $44.34 billion.
"UNH's 1Q2016 should put to bed most concerns that investors may have had," FBR senior vice president Steven Halper wrote in a Tuesday morning note. "2015 was a difficult year for UNH given the headwinds from individual exchange products. ... The company continues to be well diversified across different insurance niches and outside of health insurance with its Optum segment, which reported another strong quarter."
UnitedHealth's first-quarter results come as the company continues to quit offering Affordable Care Act plans in money-losing states.
The U.S. health insurer has struggled to participate in ACA insurance exchanges, noting in January that it expected losses of more than $500 million during 2016 on these plans. Michigan, according to The Wall Street Journal, is reportedly the third individual market the health insurance giant will retreat from in 2016.
CEO Stephen Hemsley indicated on Tuesday's earnings call that UnitedHealth would exit most of its Obamacare marketplaces by 2017.
The decision to reduce its exposure from poor-performing exchange markets--paired with an increased focus on its healthcare technology business, Optum, which it beefed up last year partly through M&A--seemingly has paid off.
Optum's OptumRx unit in November completed its acquisition of AxelaCare Holdings from Harvest Partners for an undisclosed price. In March 2015, UnitedHealth completed a $12.8 billion deal for Catamaran, which subsequently merged with OptumRx.
Optum earnings of $1.1 billion in the first quarter represented an approximately 49% increase year-over-year, with the segment's OptumHealth division performing particularly well. OptumHeath's top line grew by about 22% year-over-year to $4 billion, largely a result of the expansion in its healthcare delivery business.
Fueled by a lower tax rate and intangible amortization, the company raised its adjusted earnings per share outlook for fiscal 2016 by 15 cents to a range of $7.75 to $7.95, as opposed to previous guidance of $7.60 to $7.80.
Other segments beyond Optum also posted strong results, as UnitedHealth's Medicare, employer and Medicaid units all saw double-digit revenue growth.
UnitedHealth also started the year off strong from a membership perspective.
Medicare membership growth spiked by 9% year-over-year, while its Medicaid and employer markets saw increases of approximately 3% and 2%, respectively.
UnitedHealth's strong results may serve as a bellwether for other providers such as Anthem (ANTM) - Get Report and Cigna (CI) - Get Report , expected to report earnings in the coming weeks.
"We believe the strong UNH result will likely be carried through by its large-cap health plan peers in the coming weeks," Sterne Agee CRT analyst Brian Wright wrote in a Tuesday morning note.
UnitedHealth shares, listed on the New York Stock Exchange, climbed about 2% to $130.28 Tuesday morning.









