UnitedHealth Reiterated as Neutral - Analyst Blog

We are reiterating our recommendation on the shares of UnitedHealth Group (UNH) at Neutral following third quarter results.

During the third quarter, UnitedHealth reported earnings of $1.14 per share, way ahead of the Zacks Consensus Estimate of 84 cents, benefiting primarily from lower medical utilization. Both its Health Services and Health Benefits segments performed well during the quarter.

UnitedHealth has seen an increase in medical membership by one million, including growth of 210,000 people in the third quarter, with the strongest growth coming from commercial risk and Medicaid offerings. 

The broad base advance of one million people in the last year was driven by the diversity of UnitedHealth's offerings including innovative, consumer oriented products at lower price points and by its focus on simple, highly responsive service for customers and care providers.

UnitedHealth's Health Service business continued its growth during the quarter with combined revenues of $6.2 billion, an increase of 14.1% year over year. Combined earnings from operations of $352 million again paced ahead of the company's original outlook, UnitedHealth has invested $1.9 billion in this segment in the quarter.   

Turning to the balance sheet, UnitedHealth stands healthy. The company has maintained its debt-to-capital ratio at a favorable level of 30.1% as of September 30, 2010, down from 32.8% last year. For the past five years, its debt ratio stands at an average of 32.1%. The company also ended the quarter with $1.0 billion in free cash, which equips the company to pursue growth plans.

Following the favorable third quarter results, management upped its full-year earnings guidance to the $3.85−$3.95 range. We have also raised our estimates for the year to $3.97 from $3.65, and full-year 2011 to $3.65 from $3.50 reflecting better-than-expected third quarter results.

UnitedHealth carries a Zacks Rank # 3, which translates into a Hold rating over the short term (1−3 months).