NEW YORK (Reuters) - UnitedHealth Group Inc (UNH.N) posted fourth-quarter profit that met Wall Street targets and backed its 2009 forecast on Thursday, sending shares of the health insurer up 8.6 percent.
Analysts hailed the stable results from the largest U.S. health insurer by market value after a brutal 2008 for the sector, in which many insurers dramatically lowered their initial profit estimates for last year.
“Steadily improving execution was evident in an in-line (fourth quarter), and the steady outlook affirms our view of stable industry fundamentals,” Morgan Stanley analyst David Veal said in a research note.
Health insurer shares rose broadly on the report from UnitedHealth, which kicked off the group’s fourth-quarter earnings season.
“United has set the tone for the fourth quarter with its earnings report,” Oppenheimer & Co analyst Carl McDonald said. “There is reason to believe this could be the start of a trend.”
Net income fell to $726 million, or 60 cents per share, from $1.22 billion, or 92 cents per share, a year earlier. The latest quarter includes charge of 18 cents per share for resolving class action litigation related to out-of-network medical services.
Excluding items, earnings were 78 cents a share, matching the analysts’ average forecast, according to Reuters Estimates.
Revenue rose 9.6 percent to $20.5 billion.
UnitedHealth’s medical care ratio, a key measure of the amount of premium revenue spent on medical costs, worsened to 80.8 percent from 79.9 percent a year ago. Premium rates rose more slowly than medical costs for certain plans for employers and seniors.
However, the ratio was better than the 81.8 percent expected by analysts at Oppenheimer & Co.
Several analysts were also encouraged that UnitedHealth reported gains from reserving slightly more than it needed for medical claims earlier in the year.
“We view this as a positive sign of conservative reserving,” Goldman Sachs analyst Matthew Borsch said in a research note.
The Minneapolis-based company had nearly 32.9 million people enrolled in its health plans at the end of 2008, up by about 95,000 from the end of September.
UnitedHealth in December projected that its commercial benefit enrollment would fall by 1 million to 1.5 million members this year as it holds firm on pricing and grapples with the weak economy.
UnitedHealth continues to project 2009 earnings of $2.90 to $3.15 per share. The company posted 2008 earnings, excluding items, of $2.95 per share. Analysts are looking for a profit of $3.01 per share for 2009.
Shares of UnitedHealth rose $2.18 to $27.23 in morning trading on the New York Stock Exchange.
After a tough 2008 for health-insurance stocks, UnitedHealth shares had fallen about 6 percent in 2009 through Wednesday, less than a 7.6 percent drop for the S&P Managed Health Care index .GSPHMO.
The weakened economy has hurt health insurers as layoffs pressure the insurers’ membership levels while employers find it harder to absorb healthcare costs. The rocky financial markets have hurt the insurers’ investments and raised questions about their balance sheets.
Reporting by Lewis Krauskopf; Editing by Lisa Von Ahn, Dave Zimmerman