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UnitedHealth fourth-quarter profit beats on Optum strength

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(Reuters) – UnitedHealth Group Inc (UNH.N) beat Wall Street estimates for fourth-quarter profit on Tuesday, mainly driven by growth in its services business, including its pharmacy benefits unit.

FILE PHOTO: Traders work at the post where UnitedHealth Group is traded on the floor of the New York Stock Exchange (NYSE) in New York, U.S., January 31, 2018. REUTERS/Brendan McDermid

Optum, which also manages specialty pharmacy care services, is UnitedHealth’s fastest-growing unit, but is set to face tough competition this year with rivals Cigna Corp (CI.N) and Aetna Inc entering the sector through deals with large benefit managers.

The unit, which includes an in-house pharmacy benefits manager, benefited from growth in its care delivery, behavioral health and health financial services, the company said.

“We view (the Optum results) as a positive sign given the increasingly competitive nature of the pharmacy benefits management market,” Piper Jaffray analyst Sarah James said.

“We believe 2019 could be a big year at OptumHealth … and see potential for specialty to double earnings by 2021.”

The largest U.S. health insurer kicked off earnings season for the sector, reporting $27.56 billion in quarterly revenue from its Optum unit, a 13 percent rise from last year.

However, the company’s medical care ratio, or the percentage of premiums paid out for medical services, was 82.2 percent in the quarter, falling short of expectations, partly due to higher costs in its government-sponsored Medicaid business, analysts said.

While UnitedHealth tends to underperform on this metric in the fourth quarter, the difference of 60 basis points this time makes the miss much wider than previous years and is likely to weigh on the stock, Jefferies analyst David Windley said.

The company’s shares were slightly lower before the opening bell on Tuesday.

In the quarter ended Dec. 31, UnitedHealth’s main business, which sells health insurance plans, brought in $46.23 billion in sales, an 11.1 percent rise from a year earlier.

The health insurer also affirmed its 2019 profit forecast.

“Despite the beat, management did not increase its 2019 guidance. This is not surprising to us. Over the years, UnitedHealth has typically been conservative,” Cantor Fitzgerald analyst Steven Halper said in a client note, calling the results a “solid finish” to 2018.

Net earnings attributable to shareholders fell 16 percent to $3.04 billion, or $3.10 per share, in the fourth quarter.

Excluding items, the company earned $3.28 per share. Total revenue rose about 12 percent to $58.42 billion.

Analysts on average were expecting earnings of $3.21 per share and revenue of $58.01 billion, according to IBES data from Refinitiv.

Reporting by Tamara Mathias in Bengaluru; Editing by Arun Koyyur and Shounak Dasgupta

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