Insurer UnitedHealth Group Inc. predicts 2013 earnings growth of up to 5 percent compared with its forecast for this year, but analysts have higher expectations.
The Minnetonka, Minn., company released its initial forecast for the new year on Monday, a day ahead of its annual investor conference in New York City. UnitedHealth said it expects 2013 earnings to range between $5.25 and $5.50 per share on $123 billion to $124 billion in revenue.
Analysts expect, on average, earnings of $5.60 per share on $118.6 billion in revenue, according to FactSet.
UnitedHealth covers more than 36 million people as the nation's largest health insurer. The company, which also operates information technology and pharmacy benefits management segments, has a reputation on Wall Street for making conservative earnings forecasts initially and then raising them several times during the year.
For instance, the company raised its 2012 earnings forecast for the third time this year when it reported third-quarter results in October. UnitedHealth now expects earnings of $5.20 to $5.25 per share.
Analysts expect, on average, earnings of $5.25 per share.
The insurer raises its forecast through the year in part to reflect gains it records when claims left over from earlier periods come in lower than expected. UnitedHealth doesn't include a projection for these gains in its initial forecast, but it adds them to the outlook as they occur, Citi analyst Carl McDonald said.
The insurer's 2013 earnings forecast is conservative, but it also reflects challenges that the industry will face next year, Goldman Sachs analyst Matthew Borsch said in a research note.
CEO Stephen J. Hemsley told analysts in October that the insurer expects growth in 2013. But he also said consensus analyst expectations for 2013 were a "considerable challenge" given factors like high unemployment rates and looming costs from the health care overhaul.
At the time, analysts had forecast 2013 earnings of $5.63 per share, on average.
The overhaul aims to cover millions of uninsured people and it will pay for that, in part, with a tax on premiums that starts in 2014. Hemsley has said that will start to affect UnitedHealth's performance next year because the insurer will have to account for it in the rates it charges.
Insurers set their prices based on the claims or expenses they expect to have in future.
Hemsley also has said the insurer will have to deal with tight government budgets that will squeeze its Medicare and Medicaid businesses.
Insurers offer privately run versions of the government's Medicare program for the elderly and disabled, and they also administer coverage of the state and federally funded Medicaid program, which provides coverage for the needy and disabled.
Conservative forecasts have become an investor day tradition for UnitedHealth, BMO Capital analyst Dave Shove said in a separate report. He noted, for instance, that the insurer initially forecast a drop in earnings for 2011, but actual earnings per share grew 15 percent that year.
UnitedHealth shares slipped 71 cents, or 1.3 percent, to $53.20 Monday afternoon while broader trading indexes fell less than 1 percent.