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UnitedHealth Lifts Dow on Prospect for Lower Medicare Reimbursement Cuts

By Dan Caplinger – Feb 24, 2014 at 11:00AM

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The health insurance giant is helping the Dow today, even as telecom stocks fall. Find out the latest for the Dow.

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

The Dow Jones Industrials (^DJI) are starting the last week of February on a strong note, gaining 145 points as of 11 a.m. EST. The S&P 500 reached a new intraday record high, even as many analysts struggled to come up with a compelling explanation for the index gains. In the absence of strong macroeconomic factors sending the entire stock market up, individual-company news was in the spotlight, with UnitedHealth (UNH -1.00%) beating most any Dow stock even as AT&T (T -1.57%) and Verizon (VZ -2.00%) continued their recent string of underperformances.

UnitedHealth's nearly 3% jump came from predictions that anticipated bad news could turn out to be less damaging than expected. For months, investors have feared that government cuts to reimbursement rates for the company's Medicare Advantage products would hurt profits; an initial analysis from FBR Capital suggested that the proposed 2015 reduction of about 8% was higher than the 6%-7% many had expected to see. Yet rival Humana (HUM -1.23%) said its assessment of the proposed Medicare cuts is more favorable than it had previously expected, sending Humana's shares up 8% and raising hopes throughout the industry that the pullback will not prove as bad as feared. Given that Medicare Advantage makes up a substantial part of UnitedHealth's business, the news is important to its overall prospects.

Meanwhile, missing out on the gains today are telecoms Verizon and AT&T, both of which are down between a quarter and three-quarters of a percent. Verizon finally completed its full acquisition of its Verizon Wireless division Friday, and it followed that announcement with expectations that it will boost margins and see increased sales in 2014. Yet what has plagued both Verizon and AT&T lately is the threat of a price war for their key data-services offerings, and investors appear skeptical that Verizon's predictions adequately account for the inherently unpredictable course of future price moves in the industry. Combined with concerns about rising interest rates and their traditional downward pressure on telecom stock prices, both AT&T and Verizon might not benefit as much from further stock market gains as their Dow counterparts.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends UnitedHealth Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$34,347.03 (%)
AT&T Stock Quote
AT&T
T
$18.82 (-1.57%) $0.30
UnitedHealth Group Stock Quote
UnitedHealth Group
UNH
$532.27 (-1.00%) $-5.35
Verizon Communications Stock Quote
Verizon Communications
VZ
$38.24 (-2.00%) $0.78
Humana Stock Quote
Humana
HUM
$534.29 (-1.23%) $-6.66

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

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