INDIANAPOLIS ? Shares of UnitedHealth Group Inc. tumbled Tuesday as the health insurer's CEO gave a cautious preview of 2012 after his company delivered a better-than-expected earnings performance for the third quarter and raised its 2011 forecast.
CEO Stephen J. Hemsley told analysts he expects earnings to grow next year, but high unemployment rates, growing care use and the health care overhaul will pressure the Minnetonka, Minn., insurer's performance. He didn't offer a specific forecast for next year. The company is saving that for its Nov. 29 investor conference.
The CEO offered "a laundry list of negatives" regarding its 2012 outlook without an equal list of positives, other than noting the company's record of execution and innovation, said CRT Capital Group analyst Sheryl Skolnick
"They really want to make sure that people understand the challenges that the company faces with the thought that performance will drive upside if it happens, and that's an appropriate way of looking at the universe," she said. "Unfortunately it results in the stock being down on earnings day."
Company shares fell $2.10, or 4.5 percent, to $44.50 in afternoon trading, while broader trading indexes rose slightly. Even though the insurer's stock dropped, it was still up more than 20 percent for 2011.
UnitedHealth and other insurers have strung together several quarters of strong performances, helped in part by enrollment growth and health care use that use has grown at a slower rate than they expected when they set premiums.
Shares of UnitedHealth's competitors also sank Tuesday after UnitedHealth became the first managed care company to report third-quarter numbers and talk about expectations for the new year.
Both Skolnick and BMO Capital analyst Dave Shove expect a rebound.
Shove noted that investors have no context when UnitedHealth announces earnings. Other insurers also may say they expect challenges next year when they report earnings over the next several days, but Shove thinks the sector's stocks will recover as more companies report strong third quarters and increase their 2011 forecasts.
If UnitedHealth releases a 2012 forecast next month that's higher than analyst expectation, the company's stock could climb higher than it was before Tuesday's earnings report, Shove said.
Analysts currently expect, on average, earnings of $4.78 per share for 2012, according to FactSet.
UnitedHealth, the largest U.S. health insurer based on revenue, reported net income of $1.27 billion, or $1.17 per share, in the three months that ended Sept. 30. That compares with $1.28 billion, or $1.14 per share, in the same quarter last year, when the company had more shares outstanding. Revenue rose 7 percent to $25.28 billion.
Analysts forecast earnings of $1.12 per share on $25.41 billion in revenue.
The insurer also said it now expects 2011 earnings to range between $4.40 and $4.45 per share on more than $101 billion in revenue. That's up from its previous forecast for earnings of $4.15 to $4.25 per share on $101 billion in revenue.
Analysts expect 2011 earnings of $4.39 per share on $101.5 billion in revenue.
Revenue from UnitedHealth's largest segment, UnitedHealthcare, grew 6 percent to $23.64 billion, as the company's medical enrollment rose 5 percent to 34.4 million people compared to last year's quarter. UnitedHealthcare includes commercial coverage like employer-sponsored group insurance and government-funded Medicare and Medicaid business.
The company's medical costs also rose 7 percent to $18.41 billion compared to last year's quarter, mainly due to price increases. UnitedHealth also said it saw a "modest increase" in utilization trends for doctor's offices and outpatient care.
UnitedHealth is seen as a bellwether for managed care companies. WellPoint Inc. will follow with its third-quarter results on Oct. 26, and Aetna Inc. reports the next day. Humana Inc. reports its earnings Oct. 31, and Cigna Corp. announces results Nov. 3.
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