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What's Ahead for UnitedHealth Earnings

By Dan Caplinger - Apr 16, 2013 at 12:33PM

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The health insurance giant reports later this week.

On Thursday, UnitedHealth Group (UNH 0.83%) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever surprises inevitably arise. That way, you'll be less likely to have an uninformed, knee-jerk reaction that turns out to be exactly the wrong move.

More than any other component within the Dow Jones Industrials (^DJI 1.61%), UnitedHealth faces big changes ahead with reforms to health care laws. In particular, Obamacare presents the company with both challenges and opportunities. Let's take an early look at what's been happening with UnitedHealth over the past quarter and what we're likely to see in its quarterly report.

Stats on UnitedHealth

Analyst EPS Estimate

$1.14

Change From Year-Ago EPS

(13%)

Revenue Estimate

$30.49 billion

Change From Year-Ago Revenue

11.8%

Earnings Beats in Past 4 Quarters

3

Source: Yahoo! Finance.

Will UnitedHealth stay healthy this quarter?
Analysts have become increasingly pessimistic over the past few months about UnitedHealth's prospects, especially regarding the just-ended quarter. Consensus earnings-per-share estimates have fallen $0.18, much worse than the more modest $0.04 per-share hit to full-year 2013 calls. But that hasn't dampened enthusiasm for the stock, which has soared more than 20% since early January.

The big news for UnitedHealth recently has been the evolution of Obamacare. On one hand, insurance companies like the idea of having millions of new policyholders required to buy coverage. Yet restrictions on how much money the company can spend on administrative costs and keep as profit represent major downsides going forward.

But UnitedHealth dodged one bullet during the quarter that could have had a big negative impact. Following threats of substantially lower reimbursement rates for supplemental Medicare Advantage plans, UnitedHealth and Humana (HUM 1.69%) suffered substantial stock losses. But earlier this month the Centers for Medicare and Medicaid Services reversed their stance, supporting increases and sending stocks in the sector skyrocketing.

Still, UnitedHealth faces substantial competition. With Medicaid likely to become a much larger part of its business under Obamacare, WellPoint (ANTM 1.52%) will become its most formidable rival because of its aggressive acquisition of Amerigroup in 2012 to help it bolster its Medicaid business. WellPoint also has a higher medical loss ratio than UnitedHealth, giving it more flexibility to add new customers without having to offer premium rebates to policyholders.

In UnitedHealth's earnings report, the key aspect that many people have been ignoring lately is the company's investment in Brazilian insurance company Amil. By giving UnitedHealth business exposure outside Obamacare's purview, Amil should help UnitedHealth expand into Brazil and start building a global business that isn't as vulnerable to the whims of U.S. health care law.

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Stocks Mentioned

Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$32,637.19 (1.61%) $516.91
UnitedHealth Group Incorporated Stock Quote
UnitedHealth Group Incorporated
UNH
$502.23 (0.83%) $4.14
Anthem, Inc. Stock Quote
Anthem, Inc.
ANTM
$512.43 (1.52%) $7.65
Humana Inc. Stock Quote
Humana Inc.
HUM
$452.22 (1.69%) $7.53

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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