UnitedHealth (UNH) was upgraded to “buy” from “neutral” by Goldman Sachs (GS) on Tuesday, reflecting Goldman’s bullish view on the insurer’s ability to outperform in a rapidly reforming health-care industry.
The New York-based brokerage also said it has an improved view on managed care, reflecting low valuations and UnitedHealth's positive view on current-year trends.
“We highlight UnitedHealth’s strong position in a rapidly changing industry environment given industry-best execution, products, technology, market positioning, and scale,” Goldman analysts said in a note released Tuesday.
Commercial price competition has eased into this year, which Goldman said will lessen pressure on margins in 2013. UnitedHealth, meanwhile, has expressed confidence that it will be able to grow earnings in 2014.
More broadly for the sector, though, Goldman has maintained its “neutral” coverage view, believing that reform uncertainty will limit the degree of valuation upside this year.
Goldman also remains cautious on the medium-term for Medicare Advantage, particularly for Humana (HUM) and Universal American (UAM), which both have “sell” ratings, and drive a majority of their earnings from Medicare Advantage enrollment.
Medical Advantage for UnitedHealth, on the other hand, only contributes 20% to total earnings, with 75% of enrollment in HMO.
The health insurer last month reported fourth-quarter earnings of $1.20 a share, in-line with average analyst estimates in a Thomson Reuters poll.
Total enrollment, at 40.9 million, met the consensus view and was driven by an 18% year-over-year improvement in Medicare Advantage and commercial ASO.
UnitedHealth reaffirmed an earlier-provided 2013 guidance, with EPS in the range of $5.25 to $5.50, and expressed optimism in its potential ability to match the Street’s EPS view of $5.51.