In a brief release yesterday, US health insurer UnitedHealth Group (UNH) announced its earnings expectations for fiscal 2011 in the range of $3.50 to $3.70, which is lower than the 2010 guidance of $3.85 to $3.95.

The Minnetonka, Minnesota-based insurer, however, has come out with revenue guidance in the range of $99 − $100 billion for fiscal 2011, higher than expected revenues of $94 billion for fiscal 2010.

Though the second largest insurer (on the basis of sales) has scaled up its revenue guidance, the lowering of bottom line comes on the back of higher minimum medical loss ratio (MLR), which UnitedHealth will have to maintain as mandated by the Health Care Act as well as the freezing and gradual reduction of payments to Medicare Advantage services. 

Though a pulling down of earnings estimates is generally not a happy sign for the investing community, the share price movement of UnitedHealth signals otherwise. The stock gained close to 3% or $1.05 during the day of news announcement. Analysts and investors view the expectation as conservative, intended to reserve room for earnings beat and raising guidance. The Zacks Consensus estimates earnings of $3.63 and revenues of $99.6 billion for fiscal 2011.

UnitedHealth carries a Zacks #3 Rank, which translates into a Hold Recommendation for the short term (1−3 months). Also considering industry trends and the gradual unfolding of the health care reform laws, we carry a long term Neutral rating on the shares.