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What to watch for in UnitedHealth's earnings

Key Points
  • UnitedHealth is expected to report fourth-quarter earnings of $3.21 per share, up 23 percent year over year, according to analyst consensus estimates.
  • Revenues are expected to top $58 billion, which would be 11.4 percent higher than a year ago.
Stephen Hemsley
Jonathan Alcorn | Bloomberg | Getty Images

UnitedHealth Group kicks off earnings season for the health care sector Tuesday morning, and analysts are expecting double-digit sales and profit growth from the nation's largest health insurance and health care services firm.

UnitedHealth is expected to report fourth-quarter earnings of $3.21 per share, up 23 percent year over year, according to analyst consensus estimates from Refinitiv. Revenues are expected to top $58 billion, which would be 11.4 percent higher than a year ago. Following its third-quarter report, the company boosted its full-year 2018 earnings guidance to roughly $12.80 per share on revenues of $226 billion.

Continued momentum

United's earnings beat analyst's expectations more than 90 percent of the time, according to Bespoke Investment Group, on average by 2.9 percent. The firm's revenues top estimates about two-thirds of the time by about 1 percent on average.

Nephron analyst Josh Raskin notes that health insurers, as a group, pulled back 18 percent from the end of last earnings season through the start of the new year, 6 points more than the overall S&P 500, making potential earnings beats for the group more compelling.

"We are certainly more bullish than we were just a month ago ... with the recent pullback we have not materially changed our estimates, nor targets and therefore expected returns are higher," he wrote in a note to clients looking ahead to earnings season.

United is forecasting continued double-digit full-year earnings and sales growth for 2019 of $14.40 to $14.70 per share on revenues of $243 billion to $245 billion.

On a valuation basis, UnitedHealth shares are trading at 19.5 times estimated forward earnings, which puts it at a premium to its health insurance peers. Centene has a forward price earnings ratio of 17, Anthem trades at 16 times estimated forward earnings.

Cigna and CVS Health will be providing formal earnings guidance for 2019 when they report quarterly results in the weeks ahead, after completing their respective acquisitions in the fourth quarter.

Acquisition news

Analysts will be watching for any news on UnitedHealth's acquisition strategy, which has been focused primarily on extending its Optum division's services portfolio. The firm is reportedly among the parties bidding for a possible acquisition of Tenet Healthcare's health care management subsidiary Conifer unit, according to the Wall Street Journal citing people familiar with the matter.

Optum's largest deals last year included the acquisition of pharmacy and health benefits firm Genoa Healthcare for $2.5 billion, and hospital staffing firm Sound Impatient Physician Holdings for $2.2 billion.

United was one of a handful of Dow components trading higher today, ahead of its earnings report which is due out Tuesday before the opening bell.

—By Bertha Coombs. Follow her on Twitter: @coombscnbc