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UnitedHealth (UNH +5%) springs to life today after returning to delivering earnings upside in Q1 following last quarter's rare miss, exceeding revenue expectations, and reaffirming its FY24 EPS outlook despite encountering many setbacks. The health insurance giant has been knocked down several times since its ascension to all-time highs in December, from rising medical costs due to an uptick in outpatient care, a severe cybersecurity attack, and the Centers for Medicare & Medicaid Services (CMS) keeping its 2025 Medicare Advantage (MA) rate unchanged. The obstacles culminated in shares of UNH sinking to multi-year lows ahead of its Q1 report, a 20% drop from peak to trough.

However, this selling pressure set a low bar for UNH in front of its Q1 report today, resulting in a healthy bounce as investors breathe a heavy sigh of relief over the company's ability to still deliver bottom-line upside and remain confident in achieving its previously outlined FY24 earnings forecast of $27.50-28.00.

• The centerpiece of UNH's upbeat report was its adjusted EPS of $6.91, returning to form by exceeding analyst forecasts by double digits despite absorbing a $0.30-0.40 per share disruption related to the cyberattack at its Change Healthcare business, which is part of Optum. It is worth noting that any expenses connected to restoring any system affected by the attack will not be included in UNH's adjusted EPS figure.
• Supporting its encouraging bottom-line performance in Q1 were care patterns consistent with UNH's expectations heading into 2024. During its Q4 conference call, the company projected a medical care ratio (MCR) of 83.5-84.5%, a nice dip from the 85.0% registered in Q4. For Q1, UNH's MCR fell in-line with its FY24 forecast at 84.3%, which included 40 bps from the cyberattack. While the figure still represented a 210 bp jump from the year-ago period, much of it was caused by a previously noted headwind related to Medicare funding reductions.
• Speaking of which, after CMS left its MA rate unchanged at 3.70%, the market worried that as more seniors chose MA, given its savings, UNH would have to develop ways to absorb higher costs. Management touched on this today, noting that its strategy focuses on providing stability in the reduced funding environment, and it is confident its long-term approach, which it started last year, puts it in a strong competitive position.
• UNH's competitive position is also aided by the continued upward momentum of OptumRx, expanding revs by 12% yr/yr in Q1 to $30.8 bln. Meanwhile, OptumHealth's revs climbed by 16% to $26.7 bln, bolstered by an increasing number of patients served. UNH noted it was on track to approach 5.0 mln patients in value-based care by year-end, which should further support the company's bottom-line expansion. In total, UNH's overall revenue edged 8.6% higher yr/yr to $99.8 bln.

Plenty of clouds hung over UNH leading into its Q1 report today, most notably the CMS's recent MA rate decision. However, while costs will likely remain a lingering headwind, UNH's Q1 performance showcased its ability to absorb the numerous impacts it encountered recently, underpinning clearer skies ahead. It also bodes well for many of UNH's peers ahead of their Q1 reports this month, such as Elevance Health (ELV) on April 18, Humana (HUM) on April 24, Molina Healthcare (MOH) on April 24, and Centene (CNC) on April 26.