On Feb 28, 2014, we issued an updated research report on
UnitedHealth Group Inc.
). 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
), 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
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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