From Reuters
October 15, 2005
Insurer UnitedHealth Group Inc., which is in the process of acquiring PacifiCare Health Systems Inc. of Cypress to augment its position in the Medicare market, reported a 21% rise in third-quarter earnings Friday.
Minnetonka, Minn.-based UnitedHealth credited the increase to membership gains and lower-than-expected medical costs. The company forecast that strong profit growth would continue through 2006 at a clip of at least 15%.
UnitedHealth predicted that the coming Medicare prescription drug benefit would add 2 million to 3 million new members to its rolls next year, potentially boosting 2006 earnings by 5 cents a share. The company said membership increased to 11.4 million, a gain of 265,000 in the quarter.
Net earnings rose to $842 million, or 64 cents a share, from $698 million, or 52 cents, a year earlier. The results were a penny a share better than the average forecast by analysts polled by Reuters Estimates.
Third-quarter revenue rose 15% to $11.3 billion, in line with analysts' estimates.
Goldman Sachs analyst Matthew Borsch said UnitedHealth's results boded well for the sector. As the first of the big managed-care companies to report earnings, the company is considered a bellwether.
Shares of UnitedHealth rose $2.23 to $56.43. News of its results lifted shares of rivals WellPoint Inc., Cigna Corp., Aetna Inc. and Humana Inc.
"We expect another strong back half for managed care," Borsch said in a research note. "Continued slowing in medical cost trends should drive upside to projected earnings, setting the stage for favorable industry fundamentals through mid-2006."
UnitedHealth is set to grow after the company completes its $8.1- billion acquisition of PacifiCare. UnitedHealth said it expected to close the deal by year-end or early in 2006.
Borsch said strength in the quarter was driven by a lower medical cost ratio, a key measure of the company's effectiveness in taming costs for doctors, hospitals and pharmaceuticals.
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