UnitedHealth Group Inc.'s projections for earnings and revenue growth next year fall well short of Wall Street's expectations for the nation's largest health insurer.
The Minnetonka, Minn., company released its initial 2014 forecast on Monday, a day ahead of its annual investor conference in New York City. The company said it expects earnings of $5.40 to $5.60 per share on $128 billion to $129 billion in revenue. That widely misses analysts' average estimate of $5.67 per share on revenue of $132.2 billion, according to FactSet.
Funding cuts to Medicare Advantage coverage have fueled UnitedHealth's relatively conservative expectations for this year and next. UnitedHealth is the nation's largest provider of Medicare Advantage plans, which offer government-subsidized coverage for elderly and disabled people. The insurer has nearly 2.9 million people enrolled in the plans.
Those plans took a hit earlier this year when federal budget cuts took away money after insurers had set rates for the year. UnitedHealth, which has a reputation for providing conservative annual forecasts, told analysts in October that the cuts will wind up shaving about 15 cents per share off earnings for 2013.
Medicare Advantage plans also face more cuts next year to help fund the federal health care overhaul, which aims to provide insurance coverage for millions of uninsured people. UnitedHealth executives have been warning for several quarters about pressure the cuts are placing on the insurer's business.
In total, UnitedHealth provides health coverage for more than 45 million people and also runs information technology and pharmacy benefits management segments. In October, it narrowed its 2013 earnings by a nickel to $5.40 to $5.50 per share. The midpoint of that range is below analysts' $5.50-per-share estimate.
While the 2014 forecast is short of expectations, its "slightly more positive" than company comments about next year, BMO Capital Markets analyst Jennifer Lynch said in a research note.
"We believe investors have become more comfortable with (analyst) expectations that are bullish relative to UnitedHealth's corporate outlook," Lynch wrote.
Shares of UnitedHealth slipped 19 cents to $74.29 Monday morning, while the Dow Jones Industrial Average, of which UnitedHealth is a member, also fell slightly. UnitedHealth shares have climbed 37 percent so far in 2013, as of the close of trading on Friday.
The insurer is expected to elaborate on its expectations Tuesday during the investor presentations.
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