Deutsche Bank Downgrades UnitedHealth Group (UNH) to Hold on 'Unsustainably'

January 3, 2013 9:10 AM EST
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Price: $158.66 -0.03%

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Deutsche Bank downgraded UnitedHealth Group (NYSE: UNH) from Buy to Hold with a price target of $61.00 (from $73.00).

The firm said while United is the best positioned health insurer for the long-term with the strongest set of assets "it is hard for us to ignore the fact that the Health Benefits segment will generate ~80% of United's overall earnings in 2013 and that this segment enters the year with MLRs in both Commercial and Medicare that are likely unsustainably low for the long-term."

They continued, "... our survey results show United's weighted average fully-insured pricing trends tracking below the industry for 2013 which could make it more challenging for the company to sustain above-average Commercial and Medicare margins this year. We would note that United's management team has clearly acknowledged that the pricing environment has become tighter for 2013 which was one of the reasons that the company is building in less cushion for medical cost acceleration this year into its 2013 earnings guidance."

The firm is increasing its Commercial MLR forecast by 20 bps to 81.5% for 2013 which reduces our EPS estimate by a dime to $5.55 from $5.65. Our 2013 EPS estimate is now essentially in line with the consensus forecast for 2013 of $5.56. The firm is also trimming 2014 EPS estimate to $5.90 from $6.00, which continues to assume ~6% growth although now off a modestly lower 2013 base.

For an analyst ratings summary and ratings history on UnitedHealth Group click here. For more ratings news on UnitedHealth Group click here.

Shares of UnitedHealth Group closed at $54.54 yesterday.

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