UnitedHealth Group (UNH, Financial) reported second quarter earnings on July 17. The Healthcare company began the day near the median price for Dow Jones Industrial Average companies at $84.25.
Second quarter earnings for the company were $1.4 billion from revenue of $32.6 billion. Earnings per share for the quarter were $1.42. The report beat analysts’ expectations which estimated revenue of $32 billion and EPS of $1.26. Revenue was higher than 2Q13’s $30.41 billion. For the first half of the year revenue was 6% higher than the first half of 2013.
All business segments performed well during the quarter in comparison to the second quarter of 2013. Business revenue from Premiums was 89% of total revenue. Premium revenue was up a steady 6% to $28.8 billion. Service revenue accounted for 7% of total revenue. It was up 9% from one-year ago. Products revenue accounted for 3% of the business. It was up 38% from the second quarter of 2013 at $1.0 billion.
Management’s comments on the second quarter earnings included a discussion on some key industry factors affecting UnitedHealth. Three main factors included the implementation of the Affordable Care Act, the 2016 presidential election and initiatives by non-profit healthcare organizations. The Affordable Care Act has increased demand for healthcare in the U.S. While ACA fees and taxes have caused some added pressure on expenses the increased demand for healthcare in the U.S. has benefited UnitedHealth’s vast healthcare offerings. The 2016 election decision and political debates on healthcare will influence offerings by UnitedHealth and the industry overall. Initiatives by non-profit organizations such as the Health Care Cost Institute are also helping to raise awareness in the U.S. on healthcare issues. UnitedHealth Group’s partnerships in these activities is contributing to awareness and helping to grow revenue in its healthcare offerings.
The company’s long-standing reputation and strong clientele in the industry continues to be a leading competitive advantage. In the second quarter it reported that it increased its number of customers served to 88.1 million from 87.4 million at the end of the first quarter.
Following the announcement the stock was up 1.65% for the day to $85.11 while the DJIA finished down 0.93%. A Malaysian plane crash near the Ukraine-Russia border was a major factor for stock markets today as fighting continues in the Ukraine. After a new record close of 17,138.20 on July 16 the DJIA finished down 161.39 points at 16,976.81.
UnitedHealth Group’s stock has a basic discounted cash flow value of $93.03. Analysts have a high target of $96 for the stock. Given a likelihood of continued steady growth UnitedHealth Group appears to be a good investment for investors seeking Healthcare sector exposure. It is widely held across Healthcare mutual funds including the Vanguard Health Care Fund (Trades, Portfolio) (VGHCX). In the Vanguard Health Care Fund (Trades, Portfolio) it was the third largest holding as of June 30, 2014 at 4.2% after Bristol-Myers Squibb (BMY, Financial) and Merck (MRK, Financial).
