UnitedHealth’s third-quarter earnings were driven by the strong top and bottom lines, quelling investors’ concerns about increasing medical services and costs among seniors.
The stock gained 1.2% to $539.40 while the S&P 500 fell by 0.5% at the end of Friday’s session.
UnitedHealth raised its full-year adjusted earnings outlook to a range of $24.85 to $25.00 per share, higher than a FactSet consensus of $24.83 a share. The company’s revenue rose to $92.4 billion from $80.9 a year ago.
UnitedHealth’s stabilized medical costs and increased growth in its two business platforms, Optum and UnitedHealthcare, propelled the company’s robust third-quarter earnings. Furthermore, UnitedHealth’s executives gave investors a solid 2024 outlook during its earnings call.
UnitedHealth Group and the S&P 500’s performance in the past three months. 
Despite a sluggish start, UnitedHealth’s market performance has rebounded in the past six months and posted its best quarterly earnings this year.
“For investors who have been worried about the industry’s 2024 guidance, we suspect those comments were comforting,” said Morningstar senior analyst Julie Utterback, who rates the giant insurer as a “hold”.
Earlier this year, investors feared UnitedHealth’s medical cost ratio–a percentage of premium dollars used on medical expenses– would increase throughout the year as seniors were getting surgeries due to pent-up demand they were putting off during the pandemic.
However, the percentage of the premiums spent on medical expenses in the third quarter declined to 82.3%, lower than analysts’ estimate of 82.8%. The less money UnitedHealth has to spend on healthcare services, the more profits it keeps.
The latest earnings show “the utilization scare was fading,” wrote Jefferies senior analyst David Windley in a note, which has a “hold” rating on the company.
On the insurance side, UnitedHealthcare’s revenue grew 13% to $69.9 billion compared to last year, reflecting growth in membership. The number of people served by UnitedHealthcare grew by 3% over the same time period and has added over one million new customers.
Optum–the company’s pharmacy and technology-related services–grew 22% to $56.7 billion since last year. UnitedHealth’s pharmacy unit generates the second most revenue behind its health insurance business.
“I want to highlight one more aspect of our growth story,” said UnitedHealth’s Chief Executive Officer, Andrew Witty, in the latest earnings call. “The consistently strong performance of our pharmacy businesses.”
UnitedHealth’s Medicaid enrollment was down by 3.5%, compared with the previous quarter, due to a recent law that has forced millions of Americans to lose their health plans. However, Medicaid has a small imprint on UnitedHealth’s business, Windley noted, and shouldn’t worry stockholders because the company has other levers to pull to offset any potential loss.