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We are reiterating out Neutral recommendation on UnitedHealth Group Inc. (UNH - Analyst Report). Though bottom line fell short of the year-ago earnings, it was in line with the Zacks Consensus Estimate.

Why Reiterate?

Following the release of UnitedHealth’s first-quarter results, estimates have been revised downward. Net income of $1.16 per share was in line with the Zacks Consensus Estimate. Earnings, however, declined 11.4% on a year-over-year basis. UnitedHealth, for the second consecutive quarter, reported in line with our estimate.

The Zacks Consensus Estimate for 2012 moved down by 0.2% to $5.44 as 11 of 14 estimates moved south over the last 30 days. For 2013, 12 of 14 estimates moved down pulling the Zacks Consensus Estimate by 0.4% to $5.84 over the same time frame.

UnitedHealth expects to generate $122 billion in revenues in 2013, an increase of nearly 10% from 2012 level. Net earnings are still expected between $5.25 and $5.50 per share.

We are bullish about the company’s long-term growth prospects. It has strengthened its key capabilities to respond to the emerging growth opportunities. These initiatives have been taken to expand its Medicaid and Medicare business, grow the health service business and expand the international operations. Additionally, it has been successfully growing its membership. With the implementation of TRICARE Contract, it added 2.9 million military market beneficiaries.

The company also remains focused to return more value to its shareholders.

However, certain headwinds such as high unemployment, growing medical costs, and pressure from Health Care overhaul might weigh on its positives. Nevertheless, we believe the company will beat the odds given its diversified business model with leading market share positions in the Commercial, Medicare, and Medicaid markets.

UnitedHealth carries a Zacks Rank #3 (Hold).

Other Stocks to Consider

Apart from UnitedHealth, other stocks in the HMO industy that are currently performing well include Aetna Inc. (AET - Analyst Report), Health Net Inc. (HNT - Analyst Report) and Humana Inc. (HUM - Analyst Report). All these companies carry a Zacks #2 Rank (Buy).

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