Health insurance giant UnitedHealth (UNH, Financial) saw a 5% rise in its stock despite facing rising costs, decelerating growth, and a significant cyberattack impact in Q2. The company still posted a double-digit EPS beat and reiterated its FY24 adjusted earnings outlook, easing investor concerns.
The cyberattack on Change Healthcare reduced Q2 earnings by $0.92 per share and is expected to cut FY24 earnings by $1.90-2.05 per share, up from the previous estimate of $1.30-1.35. Medical costs also increased, with UNH's medical care ratio (MCR) rising 190 basis points year-over-year to 85.1% in Q2, surpassing its previous forecast of 83.5-84.5%. Additionally, UNH is adjusting to the Centers for Medicare & Medicaid Services' (CMS) decision to keep the 2025 Medicare Advantage (MA) rate unchanged.
Despite these challenges, UNH remains optimistic about its growth prospects for this year and into 2025, driven by strong demand across various segments of its business.
- Revenue growth slowed to 6.4% in Q2 from 8.6% in Q1 but still exceeded consensus at $98.86 billion. This growth was supported by an increase in the number of people served at Optum and UnitedHealthcare, with Optum Health seeing a 13% year-over-year revenue increase. The cyberattack did cause some revenue loss.
- Excluding the cyberattack response and South American impacts, including the sale of UNH's Brazilian business, adjusted EPS rose by 10.7% year-over-year to $6.80. While the MCR increased, about 40 basis points of the 190 basis point jump was due to suspended care management activities following the cyberattack. The remaining impact was mainly from member mix within MA and a timing mismatch related to Medicaid members, which UNH expects to realign soon.
- UNH reaffirmed its MCR forecast of 83.5-84.5%, albeit at the higher end, and maintained its FY24 adjusted EPS guidance at $27.50-28.00. Management remains untroubled by the CMS's earlier decision, noting that they are handling the funding reduction well. Margin pressures were acknowledged but are expected to be transitory, working through the pricing cycle.
Concerns about how UNH would manage various cost-related issues caused the stock to consolidate in June and July. However, the Q2 report, which mirrored the previous quarter's strong performance, has reassured investors, pushing the stock toward 2024 highs. UNH's ability to navigate current headwinds bodes well for upcoming Q2 results from peers like Elevance Health (ELV, Financial) on July 17, Molina Healthcare (MOH, Financial) on July 24, Centene (CNC, Financial) on July 26, and Humana (HUM, Financial) on July 31.
