In this episode of MarketFoolery, host Chris Hill chats with analyst Emily Flippen about the latest quarterly outcomes and news from Wall Street. Another healthcare provider published robust profits, beating market expectations.
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Hill: Lets carry on to UnitedHealth. Second-quarter profits came in much greater than expected for UnitedHealth. Although, speaking of interaction, UnitedHealth appear to be really fast to explain that this is basically a one-off, in their mind, due to deferred treatment. Which, I got to be truthful, I had not even thought about something like that, but it makes good sense when you believe about the reality that a lot of medical offices have been closed, individuals, myself included, had medical appointments that were not emergency situation associated, they were just, sort of, like general upkeep kind of visits that just, sort of, got pushed off as an outcome of that. What did you make from UnitedHealths quarter?
Eventually, they just werent paying out premiums for individuals because individuals werent going to the healthcare facility, as you alluded to. The last place consumers or individuals wanted to be over the previous couple of months is in a medical facility. They were really up front with the reality they expect as individuals press off their medical care into next quarter, that next quarter they will have higher expenditures.
I feel like the true story is truly getting lost here. Yes, it was an excellent quarter in regards to their bottom-line beats, great deals of healthcare concerns, but the genuine story, for me, has always been the Optum pharmacy organisation. And previously, pre-pandemic, United health care came out and stated, we expect Optum pharmacy, in 2020, to account for half of all of our operating revenues. This drug store service, that was really not significant to them just a couple of years back, is expected to be half of all their operating revenues this year. And we saw that pattern in the growth of their drug store organisation continue this quarter. So, when I think of United healthcare moving forward, I just believe its so essential for financiers to constantly keep an eye out on that Optum drug store; dont get swayed by these deferred healthcare expenses.
Hill: This was their second-quarter results, and I was a little struck by the reality that they preserved full-year assistance, that is not typical [laughs] in this environment for– I indicate, normally were seeing the opposite occurring where business are stating, do not ask us about guidance, were refraining from doing that. Were you amazed that they kept the full-year assistance?
Flippen: Yes, because I believe its a risky relocation on their part, primarily since someones providing a free out to eliminate assistance. And if youre dramatically incorrect on that guidance, in a really unforeseeable situation, then that can mean, possibly, actually unstable reactions from investors and in your stock price at the market, however whats truly intriguing about United health care and why I type of comprehend why they didnt edit those incomes expectations is the truth that United healthcare, if this pandemic continues, just looks much better, for precisely the factors that we saw this quarter, since people are delaying their health care expenses. Theyre keeping that full-year guidance, because even if things go back next quarter, and they have a poor quarter next quarter, it will likely even out to what their assistance was initially beginning this year. But even with the expectation that things could be better if this pandemic extends, at least on their incomes front, I believe its a dangerous relocation.
I truly do not understand if I concur with the concept of providing really broad-ranging guidance in the first location, however doing it in the unpredictable times that were living in today, even if its to the advantage, to me, simply seems like unnecessary threat.
Hill: Yeah, that is among those behind-closed-doors discussions that I would enjoy [laughs] to view a video of, because I need to believe there are individuals within UnitedHealth management who, to your point, were stating, “We dont need to do this, we have the out, its a pandemic,” you know– not to be childish about it– “but everyones doing it, why are we going to [laughs] maintain assistance?” Flippen: Yeah, and maybe Im talking about risk aversion here, however I tend to think that, why would you put yourself in the position where the only thing you can do is worse than what you say? Theres no method thats received well in the market if you do even worse than what your assistance is and you do not change that guidance throughout the pandemic. So, to me, it does feel like an unnecessary risk.
Hill: Earnings season actually kicks into high equipment later this month, truly the recently. Were simply at the start with the big banks reporting. What is a business youre going to be viewing this profits season and what within that business are you going to be viewing?
Flippen: You know, I really want to keep the health care focus, because, you know, this whole MarketFoolery episode has actually been about health care, however I will divert, Im actually going to be taking a look at Baidu (NASDAQ: BIDU). Which might sound actually surprising to individuals, specifically given what were seeing today in terms of the worldwide pandemic, however the reasons why Im looking at Baidu are not for any of the broad-reaching health care concerns, particularly as they apply to China, however really simply thinking of how this business is going to deal with the transition thats being in front of them, given the geopolitical concerns weve seen between the U.S. and China?
And why Im taking a look at Baidu, in specific, is since Baidu, previously this year, stated they would think about delisting their stock from the Nasdaq. And while they eventually said theyre not going to do that, the company is still considering pursuing a secondary listing in Hong Kong. So, I wish to see what management states in the next quarter, if anything at all, about their strategies to possibly note in a secondary listing in Hong Kong. This might be the start of a broader-reaching trend of lots of foreign companies, specifically Chinese business selecting to list on forexes, especially those in China.
And the reason Baidu CEO Robin Li wants to do this is, he thinks that the valuations for Chinese companies on the U.S. market are not up to snuff, they believe they can get more money if theyre noted in other places.
Hill: Do you believe there is more suspicion today than, say, 6 months ago about Chinese companies in general? Like, you know, thats not going to happen, however individuals look at what happened at Luckin Coffee and state, “Well, that confirms my suspicions about Chinese companies, which is, you just cant trust the accounting.”
Flippen: History has actually really not been kind to Chinese business. I believe part of the hesitation around the Chinese companies that are listed in the U.S. today, including what we saw with Luckin Coffee, was that this is not the very first time this has actually happened. You know, for financiers who are much older than I, they have lived through time periods where business that were listed from China in the U.S. were undoubtedly frauds. I mean, simply knowledgeable about the truth that they were fraudulently reporting, attempting to get investor money with really little genuine organisations. Theres a specific level of hesitation thats used to Chinese companies, just provided the unpredictable history of Chinese companies listed in the U.S., however I definitely think that simply over the last six months weve seen the investor state of mind really shift with these business, part of its the trade war, but I truly believe its a political stress between China and the U.S. right now, issues over human rights abuses, issues over innovation, even TikTok potentially stealing your data. These are the stories that catch everyones attention, whether your financiers are passive, active, or just a consumer, youre aware of whats going on right now in between the U.S. and China.
This does mean that you connect a higher threat premium to investing in Chinese companies than you might in U.S. companies, which would naturally result in those business being “worth less on the U.S. markets than they might be in other markets.” Ultimately, though, I tend to take the state of mind of, as an investor, I want to have the alternative.
And while we do require to increase transparency, I believe among the worst things that we can do for U.S. investors is have potentially great business, Im considering business, like, Baidu or Tencent or Alibaba, take their business away from U.S. investors, re-list them on foreign exchanges, ultimately all that does is limit the choices that you have as a financier.
Hill: Emily Flippen, always excellent talking with you. Thanks for being here.
Flippen: Thanks for having me.
Hill: As constantly, individuals on the program may have interests in the stocks they speak about, and The Motley Fool might have formal recommendations for or against, so do not purchase or sell stocks based exclusively on what you hear.
Thats going to do it for this edition of MarketFoolery. The program is blended by Dan Boyd, Im Chris Hill, thanks for listening, well see you tomorrow.
Hill: It has actually been far too long; that is my mistake. And so, for the individuals who have been composing in stating, “When is Emily going to get back on?”, its my fault. Shes back on tonight. Were going to discuss healthcare, because weve got Dow element UnitedHealth out with their latest outcomes. Emily is going to share the stock that she is enjoying this incomes season. Were going to begin with the stock of the day, and thats Moderna, because Modernas shares up in the neighborhood of 10%, 12% after the business said their COVID-19 vaccine prospect produced a robust action– thats their word, “robust”– in all 45 clients that were associated with an early research study.
I will point out that at the end of this month, Moderna is going to be doing a much bigger trial. Theyre going to start a trial with 30,000 individuals, so ideally the outcomes of that test are just as motivating.
Flippen: There is a lot to unpack here. This study with 45 patients, which to your point, saw a robust immune reaction in producing antibodies that might prevent or at least counter the spread of this new COVID.
Whats truly important to remember with these incomes reports is that this is the first COVID vaccine to be evaluated in people, so were at a very early phase here, this is simply a phase 1 study.
Hill: One of the important things we speak about, particularly around earnings season, is the way that companies, and in specific, executives at those business select to communicate. What do they state on teleconference, what do they state throughout the quarter, are they extremely promotional? Among the important things about Moderna is that this is a business that some have actually slammed for being excessively advertising. Even this statement today, there were some individuals I saw on Twitter; one or two I saw on CNBC who sort of having a went at Moderna for making a bit too much in their mind of this statement.
Do you come down on either side of that when it pertains to Moderna?
Flippen: Now, this is simply my viewpoint, I can see individuals who will make that argument, because there is a great deal of buzz right now around COVID vaccines, however Moderna protected themselves versus these claims. And I tend to concur with management, they said, we have a responsibility to our investors to launch info that could potentially move our stock rate, we dont desire to rest on this details because its pertinent for everyone thats purchasing our business. So, they brought out this very limited research study since they thought it was necessary for investors and customers to be knowledgeable about.
And I appreciate that, its essential to keep in mind that, again, this is just a stage 1 study, so I comprehend the uncertainty. They are the very first people to be evaluating this in people right now, and the very first results were promising.
This video was taped on July 15, 2020.
Im Chris Hill; with me today, the one and just, Emily Flippen. Good to see you.
Emily Flippen: Hey, excellent to see you again, Chris; its been a while considering that Ive been on MarketFoolery.
Were going to start with the stock of the day, and thats Moderna, due to the fact that Modernas shares up in the neighborhood of 10%, 12% after the business said their COVID-19 vaccine candidate produced a robust response– thats their word, “robust”– in all 45 patients that were involved in an early research study.
Hill: One of the things we talk about, especially around revenues season, is the method that companies, and in particular, executives at those business choose to communicate. What is a company youre going to be viewing this profits season and what within that business are you going to be viewing?
Like, you understand, thats not going to occur, however individuals look at what occurred at Luckin Coffee and state, “Well, that validates my suspicions about Chinese business, which is, you just cant trust the accounting.”
Theres a certain level of hesitation thats applied to Chinese companies, simply offered the unpredictable history of Chinese companies listed in the U.S., but I certainly think that simply over the last 6 months weve seen the financier frame of mind truly move with these business, part of its the trade war, but I actually think its a political tensions between China and the U.S. right now, issues over human rights abuses, issues over technology, even TikTok possibly stealing your information.