UnitedHealth Group (UNH) reported fourth-quarter earnings early Wednesday that easily beat Wall Street estimates, though revenue was a tad light for the nation's largest health insurer. UnitedHealth stock, a Dow Jones component, rallied.
Managed care stocks including UnitedHealth (UNH), Anthem (ANTM) and Cigna (CI) sold off Monday on an unexpected bout of "Medicare for All" nerves, as Bernie Sanders' odds of winning the Democratic nomination pulled nearly even with Joe Biden's in betting markets.
Estimates: Analysts expected UnitedHealth earnings of $3.77 a share, up 15% vs. a year earlier. Revenue should show a 4.4% bump to $60.98 billion, according to Zacks Investment Research.
Results: UnitedHealth earnings rose 19% to $3.90 a share. Revenue climbed 4.2% to $60.2 billion.
Outlook: Management reiterated 2020 EPS guidance issued at its Dec. 2 investor day: $16.25 to $16.55. Going into Q4 earnings, analysts expected UnitedHeath earnings per share of $16.45 this year.
UnitedHealth Stock At Top Of Buy Zone
The UnitedHealth (UNH) earnings report comes at a pivotal moment. Many big managed care stocks are in or near buy range from long consolidations. That includes UnitedHealth stock. However, political risk ahead of the 2020 election creates a wild card for the group.
UnitedHealth stock climbed 2.7% to 295.93 in Wednesday's stock market action, further extended from a buy zone from a consolidation going back to January 2019. The buy point is 272.54, with the chase zone running to 286.17. But UnitedHealth stock's bullish rebound from the 10-week line could offer a buying opportunity.
Centene, Humana, Cigna Stock Around Buy Points
Centene (CNC) rose 2.3% to 64.63, in buy range from a yearlong cup-with-handle base, according to MarketSmith. The Centene stock base is 44% deep, though. Bases that are more than 40% deep are less likely to work.
Humana stock rose 1.6% to 363.03, above a 355.98 buy point. Cigna stock climbed 1.8% to 208.86, back above a 205.34 buy point.
Anthem stock rose 2%, and CVS Health (CVS), which owns insurer Aetna as well as its drugstores and pharmacy benefit manager business, rose 1.3%.
UnitedHealth Earnings For Q3 Led Year-End Rebound
Three months ago, investors rushed back into the managed care sector on the strength of UnitedHealth's Q3 earnings. Well-contained medical expenses for its managed care unit, growth of Medicare Advantage membership, and double-digit growth from its Optum health services business sent UNH stock surging 8%. UnitedHealth went on to a 36% gain over 10 weeks. Wall Street essentially decided that fears over the fate of the managed care business model were overwrought and the sustained earnings of the managed care group were too tasty to ignore. At its Dec. 2 investors day, UnitedHealth highlighted its long-term outlook for 13% to 16% EPS growth.
2020 Election Risk Was Fading; Time To Worry?
The managed care group's revival gathered steam as Warren's path to the Democratic nomination seemed to run into a wall after she released a $20.5 trillion tax plan on Nov. 1 to pay for Medicare for All. Since then, she has not too subtly backed away from her idea, saying Medicare for All would wait for her third year in office. First, she'll focus on expanding coverage and implementing a public option. On the campaign trail, she emphasizes that Americans would have a choice between public and private insurance.
In addition to Warren's retreat, which seems to confirm that Medicare for All is a pipe dream, other political risks have receded. The White House dropped a plan to target prescription benefit managers such at UnitedHealth's OptumRx and CVS Caremark. Then President Donald Trump rejected House Speaker Nancy Pelosi's legislation enabling Medicare to negotiate drug prices.
Meanwhile, Trump's reelection prospects have brightened. The January IBD/TIPP Poll showed Trump trails Joe Biden by just 2 points, within the margin of error. If the economy keeps its momentum, as seems likely, Trump's prospects may continue to improve.
So what is there to worry about? Trump remains unpopular. Despite the advantage of incumbency, the election may be close. While Medicare for All isn't a real risk, other health care reforms with a more realistic shot could prove disruptive. And even if Democrats don't retake the Senate, and can't pass sweeping legislation, the regulatory power of the president over managed care companies and stocks shouldn't be underestimated.
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