UnitedHealth Group (NYSE:UNH) revealed its Q4 2024 earnings results on Thursday, showcasing mixed financial performance marked by a rare revenue miss and higher-than-expected medical costs. The Minnetonka, Minnesota-based healthcare giant reported revenue of $100.8 billion, falling short of the $101.76 billion expected by Wall Street analysts.
While the revenue figures were disappointing, the company managed to exceed earnings projections with adjusted earnings per share (EPS) reported at $6.81, which was higher than the consensus estimate of $6.72 per share and up from $6.16 year-on-year.
The increase in adjusted EPS occurred even as the company grappled with rising medical expenses, resulting in an annual medical care ratio—indicating the percentage of premiums spent on medical care—that climbed to 85.5%. This figure reflects higher costs compared to 83.2% for the previous year and exceeded the expected ratio of 84.96%.
Andrew Witty, CEO of UnitedHealth Group, commented on the company's commitment to improving healthcare access and affordability: "The people of UnitedHealth Group remain focused on making high-quality, affordable healthcare more available to more people." He noted the company's positioning for growth heading toward 2025.
Despite the earnings beat, UnitedHealth’s stock took a hit, declining nearly 5% during pre-market trading. Investors expressed concern over the company’s future prospects, particularly as its health insurance business encountered weakness amid increasing healthcare demands. Shares for UnitedHealth slid by approximately 3% to $527 during the morning trading session.
Looking forward, UnitedHealth has reaffirmed its guidance for fiscal year 2025, projecting revenues between $450 billion and $455 billion, with adjusted EPS ranging from $29.50 to $30.00. The guidance aligns closely with analyst estimates, as the consensus anticipates adjusted EPS at $29.83 against the backdrop of the company's historical performance and current market conditions.
The company noted significant growth within its UnitedHealthcare division, which reported revenue of $74.1 billion, up from $70.8 billion the previous year. The number of consumers covered by UnitedHealthcare's commercial benefits grew by 2.4 million, reaching 9.4 million people enrolled in senior and complex needs programs. Individual segments, including Optum, also showed notable progress with $65.1 billion revenue, reflecting strong growth dynamics.
UnitedHealth's Q4 results come at a tumultuous time for the healthcare sector, as the industry faces rising costs due to high demand under government-backed Medicare plans and scrutiny of price management strategies. The unfortunate death of Brian Thompson, CEO of UnitedHealth's insurance unit, last month added to the challenges, drawing attention to frustrations within the complex U.S. health insurance system.
Despite these hurdles, the company is adapting, cutting operating costs as part of its strategic initiatives. The operating cost ratio was reduced to 13.2% of sales from 14.7% the year prior, reflecting efficiency measures and resource optimization amid the current economic climate.
UnitedHealth has also faced significant challenges reflected by the recent cyberattack on its technology division, which disrupted operations and mirrored wider industry issues related to increased operational costs. The adjustments prompted by these market pressures call for cautious optimism going forward.
Analysts remain bullish on UnitedHealth stock, with many maintaining strong buy ratings based on solid fundamentals and the anticipated recovery of demand as the healthcare system stabilizes. Over the past year, UNH shares have increased by over 6%, and the average analyst price target of $646 suggests potential upside of nearly 18.8% from current trading levels.
Overall, as UnitedHealth navigates this mixed performance, the company aims to balance cost-efficiency with providing high-quality healthcare services. Its commitment to returning 100% of drug rebates to consumers by 2028 is indicative of efforts to streamline operations amid growing scrutiny of prescription benefit management practices.
UnitedHealth Group remains focused on establishing itself as not only the industry leader but also as a capable entity to tackle the prevalent challenges within the healthcare sphere. The upcoming fiscal year will be decisive, as the company seeks to regain investor confidence and adapt to the fast-evolving health market.