UNH Stock Rallies Sharply Ahead Of Q1 Report; 4 Financial Giants Headline Earnings Calendar

UnitedHealth Group (UNH) is among a group of firms set to report earnings in the coming week, along with several financial stocks like BlackRock (BLK), Citigroup (C), JPMorgan Chase (JPM) and Wells Fargo (WFC). UNH stock has been in rally mode, helped by some Medicare news earlier in the week, along with an analyst upgrade Thursday.

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Financial stocks are still badly lagging the market after the failure of SVB Financial and Signature Bank. The broad-based weakness in the financial sector has put concerns about the health of the economy back on the front burner. Morgan Stanley on Wednesday said that Wall Street estimates for regional banks need to come down meaningfully as Q1 earnings season gets underway.

At the end of March, the FactSet estimate earnings decline for the S&P 500 was -6.6%. That would mark the largest earnings decline reported by the index since the second quarter of 2020.

UNH Stock Rallies

UNH stock gapped above its 50-day moving average on Monday, helped by news that Medicare finalized payment rates for 2024 that were much higher than expected. Shares jumped again Wednesday after Raymond James upgraded the managed care firm to strong buy from outperform. The stock is also testing resistance at the 200-day moving average.

For a megacap stock, UnitedHealth continues to deliver impressive quarterly and annual earnings growth. Top-line growth has also been solid, ranging from 11% to 15% over the past seven quarters.

UNH stock reversed lower in heavy volume when the company reported Q4 results on Jan. 13. Adjusted profit increased 19% to $5.34 a share, 17 cents ahead of views. Revenue rose 12% to $82.8 billion, just ahead of the $82.6 billion consensus.

Total membership increased 375,000 from the prior quarter. The company added 165,000 Medicaid members, 130,000 commercial members and 70,000 Medicare Advantage members.

UnitedHealth’s Optum Health services unit continues to be a growth driver amid the expansion of Optum’s value-based care delivery initiatives.

For the current quarter, the Zacks consensus estimate is for adjusted profit of $6.25 a share, up 14% year over year. Revenue is expected to climb 12% to $89.4 billion. Results are due Friday before the open along with BlackRock, Citigroup, JPMorgan and Wells Fargo.

Loan loss provisions will be a focal point for banks again with worries about a sharp slowdown for the economy on the front burner again. Banks tend to set more money aside during a slowdown to account for rising loan defaults.

DAL Struggles Ahead Of Results

Delta Air Lines (DAL) has come under selling pressure again with results due Thursday before the open. The weakness in DAL stock comes even as the company has returned to growth mode.

Shares slumped 3.5% on Jan. 13 even though it reported a 573% surge in quarterly profit. Revenue increased 42% to $13.4 billion. Delta said higher labor costs would weigh on profits in Q1, but the company maintained its full-year earnings guidance of $5 to $6 a share.

In early March, Delta pilots approved a new four-year contract with 34% raises.

For Q1, Delta is expected to report adjusted profit of 32 cents a share, reversing a year-ago loss, with revenue up 35% to $12.58 billion.

Options Trading Strategy

A basic options trading strategy around earnings — using call options — allows you to buy a stock at a predetermined price without taking a lot of risk. Here’s how the options trading strategy works and what a call option trade recently looked like for UNH stock.

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First, identify top-rated stocks with a bullish chart. Some might be setting up in sound early-stage bases. Others might have already broken out and are getting support at their 10-week moving averages for the first time. And a few might be trading tightly near highs and refusing to give up much ground. Avoid extended stocks that are too far past proper entry points.

In options trading, a call option is a bullish bet on a stock. Put options are bearish bets. One call option contract gives the holder the right to buy 100 shares of a stock at a specified price, known as the strike price.

Put options are for weak performers with bearish charts. The only difference is that an out-of-the-money strike price is just below the underlying stock price. A put option gives the holder the right to sell 100 shares of a stock at a specified price.

You earn profits when the stock falls below the strike price with a put option.

Check Strike Prices

Once you’ve identified an earnings setup for a call option, check strike prices with your online trading platform, or at cboe.com. Make sure the option is liquid, with a relatively tight spread between the bid and ask.

Look for a strike price just above the underlying stock price (out of the money) and check the premium. Ideally, the premium should not exceed 4% of the underlying stock price at the time. In some cases, an in-the-money strike price is OK as long as the premium isn’t too expensive.

Choose an expiration date that fits your risk objective but keep in mind that time is money in the options market. Near-term expiration dates will have cheaper premiums than those further out. Buying time in the options market comes at a higher cost.

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This options trading strategy lets you capitalize on a bullish earnings report without taking too much risk. Risk is equal to the cost of the option. If the stock gaps down on earnings, the most you can lose is the amount paid for the contract.

UNH Stock Option Trade

Here’s how a recent call option trade looked for UnitedHealth, a liquid name in the options market.

When UNH stock traded around 507.75 on Thursday, a slightly in-the-money weekly call option with a 510 strike price (April 21 expiration) came with a premium of around $10.25 per contract, or 2% of the underlying stock price at the time.

One contract gave the holder the right to buy 100 shares of UNH stock at 510 per share. The most that could be lost was $1,025 — the amount paid for the 100-share contract.

When taking the premium paid into account, UNH stock would have to rally past 520.25 for the trade to start making money (510 strike price plus $10.25 premium per contract).

Keep in mind that this is not a trade for a small portfolio because buying 100 shares of UNH at 510 would cost $51,000.

Follow Ken Shreve on Twitter @IBD_KShreve for more stock market analysis and insight.

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