UnitedHealth (UNH, Financial) experienced a 4% drop in its stock price after its Q4 revenue growth fell short of expectations due to weaknesses in its UnitedHealthcare insurance division. Although the company exceeded earnings estimates, the margin was narrower than in previous quarters, impacted by rising medical costs. The medical care ratio (MCR) increased by 230 basis points year-over-year to 85.5%, surpassing street estimates and the company's initial outlook. UnitedHealth reaffirmed its FY25 guidance, but this was anticipated as it had been outlined last month.

• UNH reported an adjusted EPS of $6.81 for the quarter, marking a 17% year-over-year increase. Operating margins remained nearly flat, rising just 10 basis points to 5.9%, due to the increasing MCR. Key challenges included intensified hospital coding, Medicaid timing mismatches, and CMS Medicare funding cuts.
• Revenue grew by 6.8% year-over-year to $100.81 billion, missing analyst predictions for the first time since Q2 2020. This shortfall was driven by a modest 4.7% increase in UnitedHealthcare revenue to $74.1 billion. However, the Optum division excelled, with a 9.4% revenue increase, bolstered by Optum Rx and Optum Health, and a 30 basis point rise in operating margins.
• Looking ahead, UNH maintains its FY25 adjusted EPS forecast of $29.50-30.00 and revenue projections of $450-455 billion. Despite the Q4 revenue miss, UNH is focusing on cost management, targeting an MCR ratio of 86.0-87.0% for FY25, reflecting a 1-point increase from FY24. Factors such as narrowing Medicaid gaps, self-funded offerings, and AI-driven efficiencies are expected to aid this effort.

Overall, UNH delivered a satisfactory quarter, but rising costs continue to weigh on the company and the health insurance sector. The stock remains about 15% below levels prior to the death of UnitedHealthcare CEO Brian Thompson. This trend raises concerns for upcoming reports from peers like Elevance Health (ELV, Financial), Centene (CNC, Financial), Molina Healthcare (MOH, Financial), and Humana (HUM, Financial).