UnitedHealth Shares Advance After Insurer Boosts Full-Year Forecasts

This is an interesting article from Bloomberg about UnitedHealth Group, Inc.  A few things that I found interesting:

Impact of New Regulation Less Then Expected

Higher Enrollment

Decline In Medical Spending (Shouldn’t this increase if you insure more people?)

Net Income Higher Then Estimates

Largest Jump in Exchange Share Price Since December 2008

UnitedHealth Shares Advance After Insurer Boosts Full-Year Forecasts

UnitedHealth Group Inc. (UNH), the largest U.S. insurer by sales, rose the most since 2008 in New York trading after increasing its full-year forecast on higher enrollment and a decline in the company’s medical spending.

UnitedHealth gained $3.59, or 8.1 percent, to $47.83 at 1:28 p.m. in New York Stock Exchange composite trading, after climbing to $48.90 in the biggest jump since December 2008. The Minnetonka, Minnesota-based insurer said 2011 net income will be $3.95 to $4.05 a share, more than a January forecast of as much as $3.70. First-quarter earnings were 36 cents a share higher than the average estimate of seven analysts.

UnitedHealth is the first of the major health insurers to report earnings that include the impact of government-mandated spending that kicks in this year. The health-care overhaul signed into law in 2010 requires managed-care companies to spend at least 80 percent of revenue collected from premiums on care or rebate the difference to clients. UnitedHealth said it spent 81.4 percent in the first quarter.

“The impact of the new regulations was less than expected,” said Jason Gurda, an analyst at Leerink Swann & Co. in New York. “This was also UnitedHealth’s best quarter for investment income in 11 quarters.”

First-quarter net income rose 13 percent to $1.35 billion, or $1.22 a share, from $1.19 billion, or $1.03, a year earlier, the insurer said. Sales rose 9.7 percent to $25.4 billion, topping analysts’ average estimate of $25 billion.

Industry Boost

Other managed-care company shares benefited from UnitedHealth’s first quarter. The Standard and Poor’s 500 Managed Health Care Index jumped as much as 6.8 percent in intraday trading, the most since Nov. 4, 2009.

WellPoint Inc. (WLP) of Indianapolis climbed $3.10 to $72.49; Aetna Inc. (AET) of Hartford Connecticut rose $1.84 to $38.86; and Philadelphia-based Cigna Corp. (CI) gained $1.68 to $45.56. WellPoint is scheduled to report earnings on April 27; Aetna on April 28; and Cigna on May 5.

UnitedHealth’s results beat estimates because of a combination of the company’s “initial conservatism on its outlook, strong enrollment gains and overall execution,” said Matthew Borsch, an analyst at Goldman Sachs Group Inc. in New York.

In January, Chief Executive Stephen Hemsley said the company would make adjustments to its forecasts after the first quarter once it was clearer what the impact of the health-law mandates would be and whether demand for medical services was increasing.

Hemsley Comments

Today, Hemsley said on a conference call that “we see expansive market opportunities opening in health benefits and health services.”

Enrollment at the end of the quarter rose 5.2 percent to 38.7 million from a year earlier, the company said. Membership in managed-care plans sold to the government programs Medicare for the elderly and disabled and Medicaid for low-income Americans rose 8.1 percent.

UnitedHealth raised its outlook based on a 90 basis point decline in the portion of premium revenue the company spent on medical care in the quarter, said Ana Gupte, an analyst at Sanford C. Bernstein & Co. in New York. “UnitedHealth is firing on all cylinders of growth,” she said.
To contact the reporters on this story: Pat Wechsler in New York at pwechsler@bloomberg.net

To contact the editor responsible for this story Reg Gale at rgale5@bloomberg.net