Winners & Losers of Health Insurance Earnings (UNH, AET, WLP, HUM)

Earnings season is so far turning out to be a mixed bag and is so far being overshadowed by the elected officials in Washington D.C. threatening a gridlock that could ultimately result in a U.S. default.  What is almost ironic is that the health insurance operators are actually beating estimates despite healthcare reform. Earnings have been solid from UnitedHealth Group, Inc. (NYSE: UNH), Aetna Inc. (NYSE: AET), and WellPoint Inc. (NYSE: WLP) so far this earnings season.  We also are awaiting Humana Inc. (NYSE: HUM) to report its earnings.

UnitedHealth Group, Inc. (NYSE: UNH) reported earnings of $1.16 EPS versus $0.94 EPS estimates, while revenues rose over 8% to $25.23 billion that was mostly in-line with estimates.  The medical loss ratio was 81.4%, unchanged from the prior quarter.  In another boost to guidance, UnitedHealth put earnings at $4.15 to $4.25 per share and said that it expects revenues to hit that level.

Aetna Inc. (NYSE: AET) reported second-quarter earnings of $1.35 per share soundly beating consensus estimates of $1.08 per share.  The company reported quarterly revenues of $8.32 billion in line with consensus estimates of $8.31 billion. The company raised FY 2011 earnings guidance from $4.20 -$4.30 to $4.60 -$4.70.  Prior to Aetna’s revised guidance analysts had looked for earnings of $1.05 per share for the third quarter ending September, 2011 on consensus revenues of $8.36 billion and FY 2011 earnings of $4.71 on revenues of $34.8 billion.  The shares recently closed at $42.62 and its 52-week range is $26.42 to $46.01.

WellPoint Inc. (NYSE: WLP) reported second-quarter earnings of $1.83 per share besting consensus estimates of $1.80 per share.  The company reported a 4.8% year-over-year increase in quarterly revenues of $14.88 billion exceeding consensus estimates of $14.67 billion. Analysts have been looking for 2011 third-quarter earnings of $1.69 per share on consensus revenues of $14.93 billion. The shares recently closed at $73.56 but traded down on second-quarter reports.  Its 52-week price range is $48.61 to $81.92.

Humana Inc. (NYSE: HUM) is set to report earnings on August 1, 2011. Estimates from Thomson Reuters are $2.06 EPS on $9.32 billion in revenues.  For 2011, the current estimates are $7.07 EPS on $36.67 billion in sales.  At $75.75 today, the 52-week range is $45.36 to $84.32 and analysts have a consensus target of $88.22 on the stock.

Since before the July 19 earnings, UnitedHealth has seen shares go from $51.95 down then up to $52.87 before closing at $48.89 on Wednesday.  Shares are back up at $50.65 today and the consensus price target from Thomson Reuters is $59.82.

This week’s pre-earnings level on Aetna was $42.62 and shares hit $41.72 on Wednesday before recovering to $42.78 today and the consensus price target from Thomson Reuters is $49.92.

This week’s pre-earnings level from Wellpoint was $73.56 and shares closed on Wednesday at $68.70 versus only $68.94 today and the consensus price target from Thomson Reuters is $88.20.

So far it is UnitedHealth that is a the winner of the health insurers in this earnings season.  Shares hit a 52-week high of $50.89 today, still leaving about 20% before hitting the all-time highs of 2005 to 2006.  Moody’s even liked the UnitedHealth earnings enough that it raised its corporate credit ratings to ‘A3’ with a stable outlook because of a consistent earnings profile and showing consistent revenue growth.

It turns out that healthcare reform has so far been much better for the health insurers than many would have guessed.  You see who is winning so far, and don’t be surprised when these companies play Pac-Man even further when it comes to buying up business by consolidating the smaller health insurers.

Jon C. Ogg & Jim Berdou