By Josh Nathan-Kazis
The managed care giant UnitedHealth Group kicks off the earnings season for healthcare companies Friday morning. Investors will watch closely for updates on how intensely patients used healthcare services in the last quarter of the year, a key bellwether for the healthcare sector.
Higher-than-expected utilization of medical services by patients enrolled in Medicare Advantage plans over the past year has periodically sparked worries among investors in recent months.
UnitedHealth’s medical loss ratio for the fourth quarter, or MLR — which tracks the proportion of premiums paid out to cover medical expenses — will be closely watched. A higher MLR means more spending on medical expenses, and less room for profit.
Analysts expect UnitedHealth to report an MLR of 84.1% for the fourth quarter, according to FactSet, higher than the 82.8% paid out in the same quarter in 2022.
Nevertheless, Wall Street projects UnitedHealth will report earnings of $5.98 per share for the quarter, and sales of $92.1 billion. Earnings for the same quarter in 2022 were $5.34 per share, on sales of $82.8 billion.
The company has already laid out guidance for 2024, saying it expects revenue between $400 billion and $403 billion, and adjusted net earnings between $27.50 and $28 per share. That takes some of the suspense out of Friday’s report, as investors and analysts often look to fourth-quarter earnings to set expectations for the year to come.
In a note last week, J.P. Morgan analyst Lisa Gill wrote that she will be looking for updates on Medicare Advantage utilization trends in the fourth quarter, and details on the company’s announcement in late 2023 that it would sell off its Brazil operations.
“UNH generally sets the tone for how investors view healthcare service companies,” Gill noted.
UnitedHealth shares sharply underperformed the market in 2023, but were in line with the rest of the healthcare sector. Shares dropped 0.7% in 2023, while the S&P 500 Health Care sector index was up 0.3%. The S&P 500 rose 24.2%.
UnitedHealth shares were up 8.4% over the past 12 months, and 2.1% so far in 2024.
The company has scheduled an investor call for 8:45 a.m. ET on Friday.
Write to Josh Nathan-Kazis at josh.nathan-kazis@barrons.com