UnitedHealth Group Inc. (UNH), the biggest U.S. medical insurer, reported earnings that matched analyst estimates, as higher premiums and a surge in enrollment outweighed rising medical costs.
Fourth-quarter earnings of $1.20 a share met the average of 19 analyst estimates tracked by Bloomberg. Enrollment increased as the Minnetonka, Minnesota-based insurer added 6.4 million members after a Brazilian acquisition, according to a company statement today.
An early flu season spurred doctor visits in December, while some insurers also had predicted Americans would schedule more medical procedures as the economy improved. UnitedHealth’s costs for the year rose less than the company had planned, helping to sustain profit, said Sheryl Skolnick, a CRT Capital Markets analyst in Stamford, Connecticut.
“Their discipline on margins seems to be very, very strong,” Skolnick said in a telephone interview. “This was a difficult year in which they had tremendous earnings.”
The insurer’s shares rose 1.4 percent to $54.40 at the close in New York. The stock has gained 1.5 percent in the 12 months. WellPoint Inc. (WLP), the second-biggest U.S. insurer, is scheduled to report its earnings on Jan. 23.
UnitedHealth said it expects profit of $5.25 to $5.50 a share this year, reaffirming its Nov. 26 forecast.
The rise in flu cases began in November and reached a high level a month earlier than usual, the U.S. Centers for Disease Control and Prevention said this month. As of Jan. 9, about 5.6 percent of all U.S. doctor visits were for influenza, according to the Atlanta-based agency. The figure was 2.2 percent at the peak of the season last year.
UnitedHealth said medical costs rose 12 percent in the quarter to $20.8 billion. That was all but matched by an 11 percent increase in premiums and other revenue to $28.8 billion.
Enrollment in the company’s medical plans jumped by almost a fifth to 40.9 million, with gains in employer-backed plans as well as government-sponsored Medicare and Medicaid coverage. More than 4 million of the new customers came from the company’s purchase last year of Amil Participacoes SA (AMIL3), Brazil’s top insurer, for an announced price of about $4.9 billion.
“We continued to gain market share and broadened our revenue and earnings growth sources,” Chief Executive Officer Stephen Hemsley said in the statement.
Fourth-quarter net income fell 1.1 percent to $1.24 billion from $1.26 billion, or $1.17 a share, a year earlier. The company, which had a market value of $54.8 billion as of the end of trading yesterday, repurchased 57 million shares for $3.1 billion last year, UnitedHealth said.
The stock trades at a 31 percent discount to the S&P 500, its lowest level in almost two years. Investors are shying away from insurer stocks as they gauge the impact of President Barack Obama’s Affordable Care Act, said Matthew Borsch, a Goldman Sachs Group Inc. analyst in New York.
That’s likely to remain the case until investors see rules and regulations “pointing toward a manageable process for the companies,” he wrote in a Jan. 14 note to clients.
UnitedHealth boosted earnings by 65 percent at its Optum unit, which provides consulting and technology services to hospitals, governments and other clients and manages drug- benefit plans for employers. Hemsley has said the company wants to double profit from the division by 2015.
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