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We are reiterating Neutral recommendation on UnitedHealth Group Inc. (UNH - Analyst Report), prior to the fourth and full year 2013 earnings release. Though the company has shown strong performance for the first nine months of 2013, we are cautious about 2014 earnings, given headwinds related to the Affordable Care Act. 
 
Why reiterate?
 
UnitedHealth, one of the biggest after WellPoint Inc. (WLP - Analyst Report) and most diversified health insurers in the U.S, holds a huge market share in the Medicare market, which is expected to boom in the coming years as millions of Americans enter retirement. The company has made a number of acquisitions (most significant of which is the purchase of XL Health Corp.) to further strengthen its position in the Medicare Advantage (MA) market, resulting in long-term growth.
 
However, we are cautious about the margin pressure in 2014 from reimbursement cuts related to the MA program. We expect that UnitedHealth's profitability will also be hurt by an increase in expenses which will have to be incurred to comply with the changes as per the Affordable Care Contract. 
 
Nevertheless,UnitedHealth is trying to maintain its profitability by diversifying across new geographies.
 
Its health services segment branded as Optum is also performing well and is expected to contribute to earnings in 2014.
 
We expect membership to grow from International operations and the Tricare contract. 
 
UnitedHealth is also expanding its accountable care contracts and intends to reach the $50 billion mark over the coming five years.
 
The company also boasts of a strong balance sheet and a disciplined capital management strategy.  
 
On account of a constrained earnings outlook for 2014 from the company the stock experienced a downward revision in estimates. The Zacks Consensus Estimate for 2014 went down 0.9% to $5.63 over the past 60 days as 3 of the 16 estimates moved southwards. Per the Zacks Consensus Estimate the company is expected to post earnings per share of $1.40 for 2014, which translates into a  year-over-year expected growth rate of 17%.  
 
UnitedHealth carries a Zacks rank #3 (Hold)
 
Other Stocks
 
Other better ranked stocks – CIGNA Corp. (CI - Analyst Report) and Assurant Inc. (AIZ - Analyst Report), both  with Zacks Rank #2 (Buy), are worth considering. 

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