UnitedHealth raises forecast as profit tops views

NEW YORK (Reuters) - UnitedHealth Group Inc (UNH.N) posted a higher-than-expected second-quarter profit on Tuesday, helped by broad increases in enrollment, and the insurer raised its full-year earnings forecast.

The largest U.S. health insurer by market value also cited moderated use of healthcare services by its members for helping lower its medical claim costs. The industry has benefited from Americans avoiding procedures and doctor visits during the weak economy.

But UnitedHealth's higher forecast was only in line with Wall Street's target, and its shares -- which have soared this year -- fell back 2.7 percent after the announcement.

"There's a lot of anticipation built into the stock, especially in recent quarters, this one included, where there was a strong sense that utilization at hospitals in particular was going to be low," CRT Capital Group analyst Sheryl Skolnick said. "Those people who positioned themselves for upside in the quarter have already seen that gain and they are taking a profit."

Health insurers have come back into favor this year on Wall Street as investors shrug off fears that regulations from the healthcare overhaul -- such as rules mandating spending on medical costs -- will dramatically shrink profits.

Skolnick said UnitedHealth was being conservative with its assumption that the use of health services was going to rebound in the second half of the year, and called Tuesday's decline a "significant buying opportunity for the stock."

UnitedHealth, considered to be a bellwether because of its size and diversity of plans, is the first health insurer to report results for the quarter.

Its net income rose 13 percent to $1.27 billion, or $1.16 per share, from $1.12 billion, or 99 cents per share, a year earlier.

Analysts on average expected 94 cents per share, according to Thomson Reuters I/B/E/S.

According to UnitedHealth, the analysts' estimate factored in costs of as much as 15 cents per share from the potential insolvency of an unaffiliated insurance carrier in Pennsylvania. UnitedHealth is likely to still need to accrue such costs, but did not have to in the second quarter.

Revenue rose 8 percent to $25.23 billion.

"Results were exactly what we were looking for: a strong quarter but not 'outsized' and more sustainable in our view than the huge beat" in the first quarter, Goldman Sachs analyst Matthew Borsch said in a research note.

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Membership stood at 34.18 million at the end of the quarter, up 5 percent from a year ago. Membership in plans serving employers and individuals, older people using Medicare benefits and low-income Americans on Medicaid all rose.

"Enrollment was strong across the board," Gleacher & Co analyst Joseph France said. "The upside is obviously because costs continue to be lower than expected."

UnitedHealth, which is also placing greater focus on its services businesses, said profit at its OptumInsight business, which specializes in data and analytics, jumped 45 percent to $87 million.

The OptumRx unit, which manages prescription drug benefits, posted a revenue increase of 12 percent to $4.7 billion. Profit fell, however, as the company made investments to support growth plans.

UnitedHealth's push into drug benefits is bucking a trend among health insurers seeking to exit the business and threatening the dominance of the three largest companies in that field.

Many on Wall Street are expecting UnitedHealth to end its contract that outsources some drug-benefit services to Medco Health Solutions Inc MHS.N, bringing the business in-house. UnitedHealth Chief Executive Officer Stephen Hemsley said on a conference call with analysts that the company would make a decision later this year.

The company forecast full-year earnings of $4.15 to $4.25 per share, up from its previous range of $3.95 to $4.05. Analysts were looking for $4.19.

Its shares fell 2.7 percent to $50.55 in morning trading on the New York Stock Exchange. Through Monday, UnitedHealth shares had risen some 44 percent this year, ahead of the 40 percent climb for the S&P Managed Health Care index of large insurers .GSPHMO.

(Reporting by Lewis Krauskopf; Editing by Lisa Von Ahn and Maureen Bavdek)