UnitedHealth (UNH) was trading lower on Thursday, as a small earnings beat wasn't enough to distract investors from light revenue and worries about the Affordable Care Act.
The nation's largest insurer—and the first to report earnings that reflect changes mandated by healthcare reform—said it earned $1.1 billion, or $1.10 a share, down from $1.16 a share a year ago but one penny ahead of analysts' expectations.
Revenue grew 4.5% to $31.7 billion, just below the $32 billion consensus.
Yet the company's commentary about the effect of the healthcare law was downbeat, saying the Affordable Care Act shaved off about 30 cents per share in earnings, as a result of taxes, Medicare Advantage cuts, and loss of customers (although it saw an increase in its Medicaid plans).
Raymond James' Michael Baker remained bullish on the name, writing that he "expect share price performance will be driven by the company's ability to grow in a challenging backdrop, leveraging its diversified footprint."
By contrast, Citigroup's Carl McDonald downgraded the stock to Neutral yesterday, which caused a selloff in UnitedHealth and the broader sector. He had these initial thoughts: "This will be the first test of whether the market was expecting weather related utilization pressure to fuel big first quarter beats, or if everyone is okay with in-line to slightly better results. United's commercial medical loss ratio (MLR) improved 100 basis points versus last year, to 77.3%, but the health insurance industry fee should have pushed the commercial MLR down over 200 basis points alone. United cited hepatitis costs as one factor, while lower reserve development may have been another contributor."
UnitedHealth’s decline was weighing on peers Thursday, with names like WellPoint (WLP) Aetna (AET) and Humana (HUM) in the red.
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