Balanced Risk-Reward for UnitedHealth - Analyst Blog

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On Feb 28, 2014, we issued an updated research report on UnitedHealth Group Inc. ( UNH ). Last month, the company reported its fourth-quarter earnings which were a penny ahead of the Zacks Consensus Estimate.

UnitedHealth delivered positive earnings surprise in each of the last four quarters, with an average beat of 5.5%. In 2013, the company delivered an impressive performance despite facing headwinds related to the healthcare reform.

UnitedHealth is well positioned owing to its diversification, a strong track record of superior operating performance, an elite management team and exposure to certain high-growth businesses.

Compared to peers in the health insurance industry, such as WellPoint Inc. ( WLP ), Aetna Inc. ( AET ) and Humana Corp. ( HUM ), UnitedHealth boasts of a significantly diversified business profile. With a multitude of changes and challenges in its health benefits business, the company has aggressively developed its health services business - Optum - which promises to fuel long-term growth going ahead. Optum's earnings from operations increased 43% in the fourth quarter and outpaced gains from the company's health benefits business.

Additionally, UnitedHealth has expanded its international business which provides higher margins compared to the domestic business. The company is also on track with the augmentation of its Accountable Care Organization strategy.

UnitedHealth's strong balance sheet with a moderate leverage ratio and its shareholder friendly strategy of capital management is also commendable.

The company, however, faces near-term pressures in the ongoing fiscal, particularly from the Affordable Care Act (ACA) implementation and Medicare funding actions that threaten to eat into more than $1.50 per share in earnings at the company in 2014.

We also expect the company to incur higher expenses in the form of compliance costs related to ACA implementation. Moreover higher utilization expected will also pressurize the bottom-line .

UnitedHealth presently carries a Zacks Rank #3 (Hold).



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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: AET , HUM , UNH , WLP

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