UnitedHealth Down to Sell - Analyst Blog

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On May 31, 2014, Zacks Investment Research downgraded UnitedHealth Group Inc. ( UNH ) to a Zacks Rank #4 (Sell).

Why the Downgrade?

UnitedHealth Group has witnessed downward estimate revisions for 2014 and 2015 after lukewarm first-quarter earnings, which surpassed the Zacks Consensus by just a penny but declined a drastic 31% year over year. Total revenue of $31.7 billion also lagged the Zacks Consensus Estimate of $32.0 billion.

During the first quarter, negative impact from the Affordable Care Act (ACA) and sequestration cuts were nearly 35 cents per share. Operating margins also fell 90 basis points to 4.8%.

The insurer is looked upon cautiously by investors who foresee its profits being whittled by industry taxes from the ACA. They are also apprehensive about the new costly drug, Sovaldi, which could drain UnitedHealth's earnings in the ensuing quarters.

The Zacks Consensus Estimate for 2014 is down 1.25% to $5.52 per share over the last 60 days as 13 out of 17 estimates moved south. The same for 2015 fell 1.30% to $6.06 per share as 11 out of 16 estimates were lowered over the same time frame.

Going forward, the Medicare Reimbursement Cuts are also likely to drag the insurer's earnings.

UnitedHealth had experienced low level of medical care utilization over the last three years, leading to reduced medical claim cost and increased profits. However, management expects a return to a more normalized medical utilization trend soon that will wipe out the extra earnings benefit that the company was enjoying.

Other Stocks to Consider

While UnitedHealth's unimpressive Zacks Ranks does not call for investor attention, some better-ranked stocks in the industry include Select Medical Holdings Corp. ( SEM ), Triple-S Management Corp. ( GTS ) and Centene Corp. ( CNC ). Both Select Medical Holdings and Triple-S Management sport a Zacks Rank #1 (Strong Buy) while Centene has a Zacks Rank #2 (Buy).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

UNITEDHEALTH GP (UNH): Free Stock Analysis Report

SELECT MEDICAL (SEM): Free Stock Analysis Report

CENTENE CORP (CNC): Free Stock Analysis Report

TRIPLE-S MGMT-B (GTS): Free Stock Analysis Report

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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 Nasdaq, Inc.

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

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