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Analyst Blog

UnitedHealth Group Inc.  (UNH - Analyst Report) is set to report its fourth quarter and full year 2012 results on Jan 17, before the opening bell.

Last quarter it posted a 11.94% positive surprise. Let’s see how things are shaping up prior to the announcement.

Factors affecting the stock this Past quarter

UnitedHealth performed favorably for the past several quarters on the back of lower-than-expected medical utilization. This quarter may however present a different picture because of the harsh ‘flu season, which may increase the claims cost of the company, thereby directly affecting its bottom-line earnings.  

Nevertheless, other factors driving earnings would be new customer wins from government-funded Medicare and Medicaid coverage plans. The company health service unit – Optum is also expected to perform well.

Earnings Whispers?

Our proven model does not conclusively show that UnitedHealth is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Rank #1 (Strong Buy) or at least Zacks Rank #2 (Buy) or Zacks Rank #3 (Hold) for this to happen. However, this is not the case here as elaborated below.

Zacks ESP:  The Most Accurate estimate stands at $1.20 and the Zacks Consensus Estimate also stands at the same level. There is no difference.

Zacks #3 Rank (Hold). UnitedHealth’s Zacks Rank #3 (Hold) lowers the predictive power of ESP because the Zacks Rank #3 when combined with a nil ESP makes surprise prediction difficult. We caution against stocks with Zacks Rank #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Here are some other companies to consider. With reference to our model they have the right combination of elements to post an earnings beat this quarter:

CIGNA Corp. (CI - Analyst Report), Earnings ESP of +6.8% and Zacks Rank #3 (Hold)

WellPoint Inc. (WLP - Analyst Report), Earnings ESP of +2.1% and Zacks Rank #3 (Hold)

Aetna Inc. (AET - Analyst Report), Earnings ESP of +1.04% and Zacks Rank #3 (Hold)

UnitedHealth is considered to be the bellwether for insurance and is the first company to kick start earnings for the health insurance sector. Therefore, the release is going to be a significant indicator of performance in the health insurance sector this quarter.

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