We are reiterating our Neutral recommendation on the shares of
UnitedHealth Group Inc.
), following second quarter earnings results, which included a
10.2% positive earnings surprise. Over the past four quarters,
this Zacks Rank #3 (Hold) company delivered positive surprise
with an average beat of 11.1%
On Jul 18, 2013, UnitedHealth Group reported its
second-quarter 2013 earnings of $1.40 per share, higher than the
Zacks Consensus Estimate of 1.26 per share. Earnings were also up
7.4% on a year-over-year basis.
Results reflected a solid performance from its health benefits
business along with strong growth from Optum segment.
Counting on the positives, UnitedHealth is one of the biggest
and most diversified health insurers in the U.S. It holds a huge
market share in the Medicare market, which is expected to boom in
the coming years as millions of Americans enter retirement. The
company has made a number of acquisitions (most significant of
which is the purchase of XL Health Corp.) to further strengthen
its position in the Medicare Advantage market, resulting in
UnitedHealth is also expanding its accountable care
contracts and intends to reach $50 billion mark over the coming
UnitedHealth's health service business is an essential part of
the company's diversification strategy. Management is considering
the expansion of the health service business to produce 30%-40%
of operating income over the longer term.
UnitedHealth is also expanding its business internationally.
Geographical diversification features prominently in the
company's plan of action to overcome restrictions imposed by the
Health Care Reform back in the U.S.
On the tepid side, UnitedHealth is also witnessing increased
operating costs due to high medical and operating cost pressures
related to the Affordable Care Act.
Though the company had experienced low medical care over the
past couple of years, management expects it to return to
normalized medical utilization trends soon. This will wipe out
the extra earnings benefit the company had been enjoying so
Other health insurers, such as
WellCare Health Plans Inc.
), all with a Zacks Rank #2 (Buy), are worth considering.
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