Jefferies Comments On UnitedHealth Group's Strong Quarter

UnitedHealth's UNH shares ran-up 12% from 1/1 to the eve of results, suggesting investor expectations were juiced. 4Q results were solid and membership gains are slightly better, but management did talk down consensus EPS slightly. Reform effects on margin are still uncertain enough to err on side of caution. UnitedHealth was the first company in managed care to report earnings and beat estimates on virtually all key financial and operating metrics. 2011 Guidance was positive as well. Revenue beat estimates by 1% and EPS of $0.94 exceeded consensus and Jefferies estimate of $0.84 and $0.80, respectively, on lower MCR. Membership grew 3.0% YoY and was 0.5% above its estimate with broad based outperformance. The 90-day cutoff post plan year for claims development creates some interesting incentives and artificialities in the rebate calculations. Jefferies runs through a few scenarios below to demonstrate the potential impact it could have on financial reporting. Jefferies adds that with UNH up 12% this year, expect some profit taking. Jefferies has a $41 PT and Hold rating on UNH UNH is trading lower at $40.25