To The Moon

$UnitedHealth(UNH)$ fell on Tuesday on earnings, as the industry leader, while slightly beating Q3 earnings estimates, is guiding for 2025 earnings below market expectations, while also dragging down nearly the entire industry, such as $Elevance Health(ELV)$ $Humana(HUM)$ $Molina Healthcare(MOH)$ $CVS Health(CVS)$ Except, of course, for one company, $Hims & Hers Health Inc.(HIMS)$ which was mainly favorable as the FDA reconsidered removing the Eli Lilly diet pill from the shortage list (meaning it could go into Medicare).

The health insurance sector tends to be a more stable performer in volatile markets, as its steady cash flow, strong balance sheet, all give it more defensive attributes and make it one of the best choices to balance out tech stocks.

While the insurance giant provided Q4 2024 guidance in line with expectations in its pre-market Q3 2024 results, the company's 2025 adjusted profit is likely to come in at $30 per share, which is below the market's estimate of $31.17.

Of course, this doesn't preclude the company from being conservative in its guidance, as health insurers tend to be more cautious, especially with two major possible policy implications at the moment.The outcome of the upcoming election will also be more important in terms of policy implications.

1. Medicare Program Payment Cuts

2. Impact of the Inflation Reduction Act on health care costs, and Medicaid rates and health benefits.

Overall, will be more favorable to UnitedHealth Group if Kamala Harris is elected president, as she tends to support expanding Medicare coverage, lowering drug prices, and maintaining policy stability.Donald Trump, on the other hand, could face challenges such as payment cuts and market-based reforms if he is elected, all of which could have a negative impact on UNH's revenue and market position.

Financial Performance

• Revenue: UnitedHealth reported revenues of $100.82 billion, marking a 9.16% year-over-year increase and exceeding expectations by $1.54 billion.

• Earnings Per Share (EPS): The company achieved an EPS of $7.15, beating estimates by $0.12. This figure reflects adjusted earnings that account for disruptions caused by a cyberattack and other business impacts, which amounted to approximately $0.75 per share in total disruptions.

• Operating Earnings: Operating earnings were reported at $8.7 billion, with an adjusted figure of $9 billion, which excludes the direct costs associated with the cyberattack.

• Medical Care Ratio: The medical care ratio increased to 85.2%, up from 82.3% in the previous year, influenced by factors such as CMS Medicare funding reductions and changes in member mix.

• Cash Flow: Cash flows from operations reached $14 billion, which is about 2.2 times net income, indicating strong operational cash generation.

Investment Highlights

Changes in operating environment

Rising healthcare costs plus pressure on insurers' profitability.Q3's Medical Cost Ratio (MCR) rose to 85.2%, exceeding expectations of 84.4% and increasing from 82.3% a year ago, suggesting that healthcare expenditures are growing faster than premium income.

The weakening premium cycle and slower growth in premiums as the market becomes more competitive could lead to weak revenue growth, which could affect the company's overall profitability.All these have this could pull down revenue beyond 2024 to the low end of the 8-11% long-term target.

In response, the company says it will continue to invest in technology and data analytics to improve efficiency and reduce overall healthcare spending.

However, the potential moderation of care utilization patterns by 2025, combined with a reduction in the intensity of coding under the two-midnight rule and the correct matching of redetermined acuity and rates among Medicaid patients, could result in gains above the initial 2025 projection of a lift from 9% to the low end of the 13%-16% long-term goal.

Efforts to Integrate Existing Acquisitions

In recent years, the Company's M&A activities have focused on enhancing the non-regulatory revenues of the Optum business unit, including the acquisitions of companies such as Change Healthcare, LHC Group and Amedisys.These transactions have not only provided the company with new revenue streams, but have also helped it to strengthen its position in a highly competitive market.

The company said it will continue to look for strategic acquisition opportunities to enhance the capabilities of the Optum business unit.However, it will also increase its focus on integrating existing acquisitions to realize synergies