UnitedHealth Enrollment Gain Fuels Earnings — And Shares

Investor's Business Daily

UnitedHealth (UNH) cruised past second-quarter earnings forecasts on big enrollment gains, sending shares to a record high Thursday even as the insurance giant remained cautious about sweeping changes in health care policy.

The No. 1 U.S. health insurer's earnings rose 10% to $1.40 a share. Analysts polled by Thompson Reuters had expected $1.25.

UnitedHealth enrollment rose by 3 million people in Q2 vs. the end of Q1. Meanwhile, medical costs were lower than expected, a consistent theme for the industry for several years.

Revenue rose 11.5% to $30.4 billion, slightly under views of $30.5 billion. But it was the best gain in years.

Its UnitedHealthcare Employer & Individual group segment saw a $417 million dip in revenue to $11.2 billion as customers switched to fee-based services. Its Optum segment, which provides technology outsourcing and pharmacy benefits management, said revenue rose 21% to $8.8 billion.

UnitedHealth shares rose 6.5% to 70.55, hitting a new high intraday. The stock was a major contributor to the Dow's 0.5% gain.

The health insurer raised the low end of its 2013 EPS target range to $5.35-$5.50 from $5.25-$5.50. Analysts saw $5.44, above the new guidance midpoint of $5.43.

UnitedHealth warned in April that cuts in government funding for Medicare Advantage plans and changes from ObamaCare could affect 2014 results.

UnitedHealth is still wary of the impact. It said it's pulling out of some Medicare markets and reducing some benefits due to government funding cuts. That could curb enrollment gains in 2014.

"We expect pressure on the pace of revenue growth next year, given both rate and membership pressures in Medicare Advantage," said CEO Stephen Hemsley on the post-earnings conference call.

The Medical-Managed Care group is ranked No. 32 out of the 197 industries tracked by Investor's Business Daily.

UnitedHealth is the first major health insurer to report this earnings season. Aetna (AET) climbed 4%, Cigna (CI) and Humana (HUM) about 3%, WellPoint (WLP) 2%. All are at or near highs.

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