UnitedHealth Guidance Tanks Again (UNH)

UnitedHealth Group (NYSE:UNH) is again lowering its guidance.  The company now sees $2.95 to $3.05 EPS on revenues of around $81 Billion range.  Its prior guidance was $3.55 to $3.60.  First Call has estimates of $3.52 EPS on $around $81 Billion in revenues.  Its earnings from operations are now expected to be $6.5 billion and cash flows from operations approaching $5 billion. Prior estimates for cash flows from operations were $5.7 billion to $6.0 billion.

The health insurer has seen a continuation of the pressures in the first quarter on greater-than-expected pressure on premium yields in an intensely competitive environment. Medical cost trend remains within its previously projected range of 7.5% +/- 50 basis points, and projected 2008 consolidated medical care ratio is expected in the range of 82.5%, +/- 50 basis points, with a medical care ratio in the range of 83.3% +/- 50 basis points. Its prior estimates were 81.3% and 82.3% respectively, with the same +/- 50 basis points skewing.

While this is looking uglier than before, this stock is almost pricing in a universal healthcare market where its earnings are under constant pressure beyond competition.  At $25.63 on yesterday’s close, we get even a sub-10 P/E for 2008 even if we take estimates down to an even lower $2.75 EPS (forecast is now $2.95 to $3.05).

The company’s 52-week trading range is $25.29 to $59.46, and we normally see about 12.4 million shares trade hands.  We are likely to see both the 52-week low and the volume challenged early on this morning..

Jon C. Ogg
July 2, 2008