(Repeats April 17 story for wider readership)
* What: Health insurer first-quarter earnings
* When: UnitedHealth kicks off season on Tuesday
By Lewis Krauskopf
NEW YORK, April 17 (Reuters) - U.S. health insurers may start to win back investors to their beaten-down stocks next week but the chances of a strong rebound seem unlikely until greater clarity emerges on U.S. healthcare reform.
The industry's two biggest companies -- UnitedHealth Group Inc (UNH.N) and WellPoint Inc WLP.N -- kick off first-quarter earnings season, and HMO stocks often fluctuate dramatically on their results. UnitedHealth reports Tuesday, WellPoint on Wednesday.
Beginning a year ago, profit warnings, balance sheet concerns and uncertainty over healthcare reform battered the stocks. Since the start of 2008, the S&P Managed Health Care index .GSPHMO of six large U.S. health insurers has fallen about 58 percent compared to a 41 percent drop for the S&P 500 index .SPX.
Stifel Nicolaus analyst Thomas Carroll said the first-quarter results "will make or break investor sentiment on a group of stocks that has weathered a stormy year."
The companies "must illustrate improving fundamentals by achieving the operational goals set for themselves and investors," Carroll said in a research note.
In March 2008, WellPoint shocked investors by cutting its full-year profit forecast. They were not the last. Virtually every major health insurer lowered its earnings expectations at some point last year, as some miscalculated pricing for their health plans.
But March 2009 has come and gone with no such warnings, leading to optimism.
"In contrast to last spring, industry fundamentals point to a solid earnings season for well positioned commercial managed care companies," BMO Capital Markets analyst Dave Shove said in a research note.
Shove and others say consumers are cutting their use of healthcare services to save money in the weak economy -- a trend that bodes well for health insurers' results. There are indications of better pricing in the industry as well, Edward Jones healthcare analyst Steve Shubitz said.
Health insurer stocks trade at about 7.2 times 2009 earnings projections, with UnitedHealth the most highly valued at 8 times.
A strong quarter could propel the stocks to could rise to a valuation of 10 times estimates, said Shubitz, who covers UnitedHealth, WellPoint and No. 3 health insurer Aetna Inc AET.N.
"My sense is that the stocks could get a boost," Shubitz said. "However, there's a limit to how much enthusiasm investors are going to have given the fact that healthcare reform in some form is basically imminent."
"With that kind of overhang, there's certainly a limit to how high these stocks can actually run," Shubitz said.
Credit Suisse analyst Greg Nersessian recommends that short-term investors sell into any rally that emerges from the quarterly results.
"When the focus of attention shifts to Washington D.C. and the potential healthcare reforms that are being contemplated in Congress, the stocks crater with seemingly no support," Nersessian said in a research note.
While the economic climate may produce a silver lining in lower healthcare spending, higher unemployment is taking a toll on the health insurers' membership rolls.
Both UnitedHealth and WellPoint are projecting membership declines for its commercial plans for employers, and investors will look for updates on their outlooks.
Also in focus will be WellPoint's recent move to sell its pharmacy benefits business to Express Scripts Inc ESRX.O for $4.68 billion.
UnitedHealth also has a drug benefit unit and may face questions about whether it will explore options for the business.
After UnitedHealth and WellPoint report, Humana Inc (HUM.N), Coventry Health Care CVH.N, Aetna and Cigna (CI.N) post results later this month. (Editing by Matthew Lewis)