On Mar 24, Zacks Investment Research downgraded UnitedHealth Group Inc. UNH to a Zacks Rank #3 (Hold).
Why the Downgrade?
The company witnessed the rank downgrade largely due to industry-wide factors which are likely to have an adverse effect the company going forward.
For UnitedHealth, Affordable Care Act (ACA) fees and taxes remain a big issue in 2015. The company expects its share of the managed care industry's non-deductible ACA insurer tax to reach $1.8 billion in 2015, up from approximately $1.3 billion in 2014. This is in addition to reinsurance of $320 million in 2015 compared with reinsurance of nearly $460 million in 2014.
Though UnitedHealth expects that a portion of the tax (but not the fees) can ultimately be recovered from the state Medicaid programs, these will reduce its share price by nearly 15 cents in 2015. The company’s margins fell 50 bps at UnitedHealthcare in 2014 due to Medicare Advantage cuts, ACA costs, and less favorable development of medical costs. These trends are likely to continue through 2015 as well.
Moreover, UnitedHealth is exposed to reimbursement cuts in its Medicare business. The business accounts for approximately 40% of UnitedHealth Group’s health care revenues. With the government looking for new ways to lower costs and raise revenues through cuts in reimbursement and taxes, the company is poised to face more trouble going forward.
Other Stocks
Better-ranked players from the same industry include Anthem, Inc. ANTM, Aetna Inc. AET and Centene Corp. CNC. Each of these stocks sports a Zacks Rank # 2 (Buy).
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