Earnings season is officially here!

First, thank you to everyone who submitted companies they'd like me to review. I always appreciate hearing what you're interested in.

This week, I'm planning to cover UnitedHealth Group, ASML, and Taiwan Semiconductor, with LVMH if time permits.

First up is UnitedHealth, which has easily become one of the most followed turnaround stories in the market.

Disclaimer: This is not financial or investment advice. I'm sharing my personal investment decisions and reasoning for educational and informational purposes. Always do your own research before making any investment decisions.

UnitedHealth Group is the world’s largest health insurer, combining UnitedHealthcare’s insurance business with Optum’s care delivery, pharmacy, and technology operations. The third quarter marked another step forward in its turnaround, with earnings improving significantly despite declining membership and largely flat revenue.

Quarter at a Glance

What Mattered

1/ More Profit From Less Revenue

UnitedHealth's profitability continued to recover even as revenue slipped. Q3 revenue declined 0.4% to $112.7B, yet operating earnings rose 52% to $6.6B, with higher profits from both UnitedHealthcare and Optum. Earnings were lower than Q2, consistent with the seasonal pattern management had previously outlined, but represented another substantial improvement from the depressed 2025 base.

Medical costs consumed 88.4% of insurance premiums, down from 89.9% a year ago, while the operating cost ratio declined from 13.5% to 12.8%. Management attributed the improvement to benefit design changes, tighter pricing and medical cost management, and greater operating efficiencies. These initiatives are helping restore margins even as insurance membership continues to shrink and underlying medical costs remain elevated.

The continued improvement prompted management to raise full-year adjusted EPS guidance from $19.50–$20.00 to at least $20.50. CFO Wayne DeVeydt described the higher earnings baseline as durable and a solid starting point for future growth.

However, not all of the improvement came from current-quarter operations. UnitedHealth recorded $610M of favorable reserve development, equivalent to roughly 70 basis points of the medical care ratio. The company had reserved more for claims from earlier in 2026 than it now expects to pay, and the difference boosted Q3 earnings. UnitedHealth recorded a similar $860M benefit in Q2. These are legitimate accounting adjustments, but the benefits won't necessarily repeat, and management hasn't clarified how much of the recovery would hold up without them.

2/ An Uneven Insurance Recovery

Medicare has been the strongest performer. Following changes to pricing, benefits, and provider networks, medical costs have come in better than management originally expected. The company now expects Medicare operating margins near the top of its 2%–4% target range, an improvement from its prior outlook of above 3%. However, this has come with a smaller membership base, as Medicare Advantage enrollment has declined from 8.4M at the start of the year to 7.6M.

Medicaid is also improving, although it remains unprofitable. Management now expects full-year margins to be moderately better than -1%, compared with its previous forecast of -1% to -1.7%. The improvement reflects tighter management of complex care costs, changes to provider networks, and operational efficiencies. State reimbursement rates remain a challenge, but management continues to view 2026 as the trough year for Medicaid margins, with further improvement expected in 2027 and a return to targeted margins by the end of 2028.

Commercial insurance, meanwhile, continues to struggle with medical costs rising faster than expected. Cost trends remain above the company's original 11% forecast, driven by higher-cost specialty drugs, greater intensity of medical services, and disputes over out-of-network payments under the No Surprises Act. Management said costs are stabilizing, albeit at historically elevated levels, and has priced its 2027 plans accordingly. When asked about returning to historical commercial margins of 7% or higher, UnitedHealthcare CEO Tim Noel acknowledged that the recovery would take longer, without providing a specific timeline.

3/ Confidence In 2027

With profitability improving, management is increasingly turning its attention to growth in 2027. CFO Wayne DeVeydt suggested that current analyst estimates may underestimate next year's earnings potential, pointing to the lower end of UnitedHealth's long-term 13%–16% annual EPS growth target as a reasonable starting point. Formal 2027 guidance is expected before year-end.

Much of that confidence rests on the changes made throughout 2026. In Medicare Advantage, management sees opportunities for growth in higher-value HMO and special-needs plans, while reporting a strong commercial selling season heading into 2027. Optum Health is also shifting its focus toward growth, including serving more patients within existing markets and expanding home health, surgical, and other care services. Management expects the division to grow earnings in 2027, with further progress toward its 6%–8% operating margin target by 2028.

Technology is instrumental to the plan as well. UnitedHealth is beginning to demonstrate measurable efficiency gains from AI, including a 33% reduction in chart review time for clinicians using AI-enabled summaries and a 26% reduction in appeal processing times. Optum Insight's Integrity One product has grown from just two implemented clients at the end of 2025 to 15, with another 24 in the process of implementation. Management expects the broader Optum Insight business to make further progress in 2027, with growth accelerating in 2028 and beyond.