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UnitedHealth's 2020 Guidance Disappointed, But a Potential Remedy Remains

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UnitedHealth's (UNH) - Get UnitedHealth Group Incorporated (DE) Report guidance may not be anything to worry about, even though the stock fell Tuesday. 

Shares of the health insurance giant fell 1.02% to $276.80 Tuesday, while the S&P 500 fell 0.86% on trade deal pessimism

UnitedHealth is TheStreet's premium sister site RealMoney's stock of the day. See here for all of the latest analysis on the stock. 

UnitedHealth announced just before its investor day that it's forecasting 2020 adjusted earnings per share of between $16.25 and $16.55, with the midpoint of $16.40 missing analysts estimates of $16.46 by 3%. Still, the company guided for revenue of between $260 billion and $262 billion, better than analysts expectation of $260.2 billion. 

But there's good news in all of this. 

Management usually guides conservatively. In fact, UnitedHealth has beaten adjusted EPS estimates in each of its last 8 quarters and it has beaten revenue estimates in 6 of its last 8 quarters. 

History aside, there are a few keys investors should be watchful of in 2020, with one of the most important being United's medical loss ratio. That ratio shows the amount in payouts made by the company versus the amount in premiums it takes in. The midpoint forecast for the company's 2020 medical loss ratio is 81.7%, meaning that management expects that, for every dollar it earns in premiums, it will payout roughly 82 cents to customers. Investors certainly want to see United keep that percentage at 81.7%, but the lower that number goes, the more of a lift to free cash flow the company will see. Since 2017, United's ratio has been between 80% and 82%. 

Also among "the big moving pieces in 2020," according to Deutsche Bank analyst George Hill, is the following:

"We expect United to continue to post growth in its Medicare Advantage business and deliver improvements in Medicaid as well in 2020," Hill said. Hill kept his $263 price target unchanged. 

United Health is a holding in Jim Cramer'sAction Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells UNH? Learn more now.

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