Why This UnitedHealth Analyst Sees Upside Ahead Following Q2 Earnings

Shares of UnitedHealth Group Inc UNH rallied 5.38% on Friday after the health insurer reported a second-quarter earnings beat and hiked its full-year guidance.

The Numbers: On Thursday, UnitedHealth reported second-quarter adjusted EPS of $5.57 on revenue of $80.3 billion. Both numbers topped consensus analyst estimates of $5.21 and $79.7 billion, respectively. Revenue was up 13% from a year ago.

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UnitedHealth reported $45.1 billion in revenue from its Optum segment, up 18% year-over-year. It also reported its medical care ratio (MLR), the percentage of premiums paid out as medical claims, dropped from 82.8% to 81.5% in the quarter.

Looking ahead, UnitedHealth guided for full-year adjusted EPS of between $21.40 and $21.90, up from its previous target range of between $21.20 and $21.70. Analysts had been expecting $21.69.

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Analyst Take: Following the report, Bank of America analyst Kevin Fischbeck said the drop in MLR was particularly bullish.

"Overall, the beat and raise is solid and somewhat expected given the depressed utilization and is a positive for the group," Fischbeck said.

He said UnitedHealth's earnings came in above expectations even after accounting for a favorable prior period development. UnitedHealthcare exceeded Bank of America's expectations by 17%, and Fischbeck said Optum continues to outperform.

In addition, he said the fact that UnitedHealth boosted its reserves suggests the updated full-year guidance range may be conservative.

Bank of America has a Buy rating and $632 price target for UnitedHealth.

Benzinga's Take: UnitedHealth's 13% revenue growth is impressive for a company its size, and Optum continues to be the golden goose. UnitedHealth isn't the type of stock that is going to knock your socks off with huge gains, but the company is certainly one of the best defensive blue chip stocks in the health care sector.