UnitedHealth (UNH) reported a first-quarter profit above estimates and raised its 2019 earnings forecast, driven by strength in its pharmacy benefit management business and higher enrollment for its health plans.
The largest U.S. health insurer’s shares rose 2% to $235 in pre-market trading.
The industry bellwether, which is the first health insurer to report quarterly results, raised its full-year adjusted earnings forecast to between $14.50 and $14.75 per share from its prior view of $14.40 to $14.70.
“We find this notable, as UnitedHealth has historically been conservative in adjusting guidance early in the year,” Cantor Fitzgerald analyst Steven Halper said.
The health insurance sector recorded its largest weekly share price decline last week since March 2009, as worries persist over proposed changes to the industry-wide system of rebates paid to insurers by drugmakers.
UnitedHealth continues to deliver consistent performance, but now the question is whether any rebound in shares can be sustained amid the political overhang that has plagued the sector, Evercore ISI analyst Michael Newshel said.
Optum, which is UnitedHealth’s fastest-growing unit, brought in sales of $26.36 billion in the quarter, a jump of nearly 12% from a year earlier.
The rebates, integral to the business model of pharmacy benefit managers (PBMs) like UnitedHealth’s Optum, have been a target of the Donald Trump administration that has prioritized lowering prescription drug prices in the country.
The unit benefited from growth in its care delivery, behavioral health and health financial services, the company said.
Last year, rivals Cigna and Aetna combined with Optum’s two largest rivals, Express Scripts and CVS.
UnitedHealth’s medical care ratio, which compares premiums with the cost of delivering medical care, worsened to 82%, from 81.4% last year, on deferral of the health insurance tax, the company said. Analysts on average were expecting 82.2 percent.
In the quarter ended March 31, net earnings attributable to UnitedHealth’s shareholders rose 22.2% to $3.47 billion, or $3.56 per share, driven by the addition of 880,000 more members to its health plans.
The company reported adjusted earnings of $3.73 per share, beating estimates of $3.60 per share, according to IBES data from Refinitiv.
Total revenue rose 9.3% to $60.31 billion, ahead of estimates of $59.7 billion.
The healthcare sector has come under pressure after the U.S. government in January proposed a rule that would overhaul the use of drug company rebates in government-run healthcare plans.
Adding to investor concerns, U.S. Senator Bernie Sanders recently unveiled the latest version of his “Medicare-for-All” plan that would eliminate private insurance and shift all Americans to a public healthcare plan.
UnitedHealth Chief Executive Officer David Wichmann said some proposals being discussed represent a “wholesale disruption of American healthcare” that would impact the economy and jobs without improving patient access.
On the potential impact from the proposed change to the rebate rule, the company said discounts they currently receive are mostly passed on to clients.
“Ninety percent of what we manage is generic (drugs) with no rebates,” said John Prince, a senior company executive.
“Within our total client base, 98 percent of our discounts are passed on to our clients.”
Analysts said that despite the recent slump in shares, fundamentals of the industry are still on track.
“But a negative sentiment around the sector is, in the short-term, more than offsetting what we see as a continued positive fundamental trajectory for UnitedHealth,” Stephens Inc analyst Scott Fidel said.