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Sector Snap: Analyst evaluates health insurers

NEW YORK (AP) -- A Morgan Stanley analyst says 2014 will be a tricky year for health insurers, but the federal health care overhaul will lead to greater profits over the long term.

Analyst Andrew Schenker said Wednesday that health insurers will get $90 billion in revenue growth from health care exchanges and the Medicaid expansion included in the 2010 Affordable Care Act, but they are also facing tighter profit margins and a new excise tax as well as potential challenges to Medicare funding.

"Health reform will drive long-term profitability, but near-term earnings will likely be volatile," he said. "While most managed care organizations should ultimately benefit under reform, we expect some to be winners and some to be challenged next year given the opportunities for enrollment growth, the potential for margin compression, and execution missteps due to reform."

Schenker started covering the sector with an "in-line" view. He started with "Overweight" ratings on Aetna Inc., Cigna Corp., and UnitedHealth Group Inc., "Equal-weight" ratings on Humana Inc., WellPoint Inc., Centene Corp., and Molina Healthcare Inc., and an "Underweight" on WellCare Health Plans Inc.

In afternoon trading, Aetna stock gained $1.01 to $66.95, Cigna shares picked up 60 cents to $86.42, and UnitedHealth shares rose $1.10, or 1.5 percent, to $73.08. Humana shares rose 57 cents to $100.85, and WellPoint stock lost 43 cents to $92.33. Centene shares declined 43 cents to $56.90 while Molina shares added 16 cents to $31.65. Shares of WellCare rose 81 cents, or 1.1 percent, to $71.57.