Vitals Strong at UnitedHealth

In the early 1990s, UnitedHealth Group (NYSE:UNH) was merely a regional insurer. Fast-forward 15 years and the company has transformed itself into one of the nation's largest health-care service companies, with a current market cap of $67 billion. Although the company's stock price cratered during this year's first two quarters, and similar drops were experienced by fellow large-cap health insurers Aetna (NYSE:AET) and Cigna (NYSE:CI) during that time period, the stock prices of all three insurers have recently rebounded on increased third-quarter profits.

Last month, UnitedHealth reported third-quarter earnings per share of $0.79, which reflected a 23% increase over its EPS of $0.64 for its 2005 Q3. The insurer reported consolidated revenues of $18 billion, or a 59% increase over its prior-year Q3 consolidated revenues. The company's consolidated net earnings also increased 31% from the year-ago quarter. These stellar results led company management to increase its full-year EPS guidance to a range of $2.95-$2.97, up from its previous guidance indicating a range of $2.91-$2.95. UnitedHealth also forecast that its 2007 revenues will be 15% higher than its 2006 predicted results.

The company has proven itself the market leader in the Medicare prescription market. For the quarter ended Sept. 30, 2006, UnitedHealth reported that its Medicare Part D plan had grown to approximately 5.75 million members, giving it more members than any other insurer's Medicare prescription plan. The company also announced that this segment of its business had swung to an operating profit on revenue of $1.4 billion. This was welcome news for the company, as this segment was previously in the red.

UnitedHealth CEO William McGuire, who has led the company since 1991, will be out as the company's CEO as of Dec. 1. He will be replaced by current company president and COO Stephen Hemsley. Hemsley's unanimous appointment was announced following an investigation that uncovered the probability that many stock-option grants made over the past 12 years were backdated.

While it is too early to predict what the ultimate fallout from the controversy might be, UnitedHealth management has said that it has not lost any customers because of the investigation. Its Q3 results give the indication that the company is in a position to experience healthy growth for the foreseeable future. The revelation that operating costs have declined 110 basis points year over year, to 14% of revenues, shows that the company is committed to streamlining its operations where possible. Taken together, these are encouraging developments for Fools who are in this one for the long run.

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Fool contributor Billy Fisher does not own shares of any of the companies mentioned. The Fool has a disclosure policy.