On Monday, U.S. health insurer
UnitedHealth Group Inc.
(
UNH
) announced 2013 earnings estimates in the range of $5.25-$5.50
per share. The Zacks Consensus Estimate of $5.60 is 10 cents
above the high end of company's guidance. Revenue for 2013 is
expected to fall in the range of $123-$124 billion.
The company provided a narrow outlook mainly due to an uncertain
business environment and difficult employment scenario. The
company is also worried about a tight commercial pricing
environment and a reduction in funding in the Government's
business (Medicare as well as Medicaid), which will directly
impact its earnings. Moreover, higher operating cost is expected
to be seen since the company will have to spend for complying
with new rules and laws as stipulated by the Health Care Reform.
We are not surprised with the fact that the company has given
conservative earnings guidance, since it follows a tradition of
guiding conservatively and then beating the estimates to post a
positive surprise. For 2012, the company had initially provided a
narrow earnings outlook of $4.55-$4.75 at its investor day last
November.
However, each of the already three reported quarters this year
had surpassed the Zacks Consensus Estimates. The company had made
an upward revision to 2012 earnings for the fourth time last
month. It now expects 2012 earnings to fall in the range of
$5.20-$5.25. This track-record showed by the company in the past
helped it prevent a big decline in share price, which was down by
1%, yesterday.
Nothwithstanding the challenges looming in the year ahead, we
strongly believe that UnitedHealth is better positioned than
other carriers such as
CIGNA Corp.
(
CI
),
Humana Inc.
(
HUM
) and
Aetna Inc.
(
AET
), given its size, scale and a significant business
diversification. The company has been very proactive and is
aggressively reshaping its business since the Health Care Reform
came into the scene, with a view to become more resilient to the
changing health insurance market place.
The company is seeking to grow in the less regulated parts of its
business. In this regard, it has considerably improved its health
services segment branded as Optumn, which provides ancillary
health services.
Currently, the segment accounts for approximately 1/5th of the
company's revenue. It is expected to represent 30%-40% of the
revenue in a few years, due to the new market opportunities
presented by the industry's focus on health and wellness,
preventative treatments, and reduced spending. The company has
also made a number of acquisitions under this segment to bolster
expansion.
UnitedHealth is also enhancing its international business, which
will fuel long-term earnings growth. The recent acquisition of
Brazil-based Amil is sure to bolster UnitedHealth's top-line
growth in the emerging Latin American market.
The recent TRICARE contact and national account wins will also
increase the company's enrollment, driving top-line growth.
Moreover, UnitedHealth's track-record of solid capital execution
and a strong capital position will help bottom-line earnings to
rise.
UnitedHealth currently retains a Zacks #3 Rank, which translates
into a short-term Hold rating. We are also maintaining our
long-term 'Neutral' recommendation on the shares.
AETNA INC-NEW (AET): Free Stock Analysis
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