UnitedHealth Shares Fall On 2013 Worries

Now that investors have had a few hours to digest UnitedHealth Group�s (UNH) third-quarter earnings report, the share price isn�t getting the same lift it initially received this morning.

At $56.72 a share in mid-afternoon market action, the stock dropped 77 cents, or 1.3%, having bounced up to almost $58 a share earlier in the day. �

So why the change in direction?

UnitedHealth, the nation�s largest health insurer by revenue and membership, reported healthy earnings on Tuesdaymorning of $1.56 billion, or $1.50 a share, up from $1.27 billion, or $1.17 a share a year ago, on revenue of $27.3 billion. It came as no surprise. Last week, the company forecast earnings of at least $1.45 a share, which was 20 cents ahead of the average forecast by analysts surveyed by Thomson Reuters at that time.

UnitedHealth also raised its full-year earnings guidance for 2012 to a range of between $5.20 a share and $5.25 share.

But CEO Stephen J. Hemsley struck a cautious note regarding next year. According to the DJ Newswires, while UnitedHealth expects to expand revenue and earnings next year, Hemsley said the company views average analyst forecasts as a “considerable challenge from this distance, given these market conditions.”

Those remarks led to questions from analysts during a conference call. And Hemsley stressed they shouldn’t “over-read our caution,” and that the company was sending out a reminder about these challenges in light of strong recent results. He also noted that UnitedHealth has benefited from several factors this year — including an earnings-boosting impact from excess reserves set aside to handle expected member health costs� that it can’t guarantee will be there next year to help push up earnings.

Remarks like these�make investors skittish, especially given that an improving economy may bring an end to the low usage of health-care services that has helped boost earning across the managed care industry for the last few years.

But last week�s Barrons.com�s Teresa Rivas weighed in bullishlyon UnitedHealth after the company announced a $4.9 billion deal to purchase a 90% stake in Brazilian insurer Amil Participacoes. And CRT Capital analyst Sheryl Skolnick, reiterated a Buy rating on the stock today, arguing that UnitedHealth is the �Rodney Dangerfield of managed care in our view.� Skolnick writes in a note published today:

�The Street may therefore look through these stellar results because the upside was all from a lower MLR from a company that was predicting higher utilization trends since last year. In other words, charges of �sandbagging� rather than �strong care management� or �smart benefit design� will likely dominate today�s tone. Too bad that UNH doesn’t get the respect it deserves (in our view) for execution on membership growth, expense control, strategic positioning, diversification, innovation, leadership and vision. We, on the other hand, see stellar execution across that board�

�Skolnick sees UnitedHealth�s share price climbing to $72 in the next 12 months.