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Analysts recently held a series of meetings with UnitedHealth Group (UNH) CEO, Stephen Hemsley. Looking ahead, they considered demonstrating improved operational precision/stability in the quarterly reports, and creating a view toward a differentiated, long-term earnings growth outlook as the two key factors that were most critical for the stock.

On the first issue, the company is emphatic that it has seen “no recurrence at all” of the utilization issues that impacted the 1st quarter commercial MCR. On the second, there is no backing down from long-term growth outlook. It is targeting to more than double the top line over next decade (an extra $100 billion), and reiterated its view for 15% EPS growth. The company sees business unit realignment as more significant than is generally recognized.

Government programs are still a key component for growth, comprising about half of the top-line target. Senior business is a major factor, but could TRICARE be ahead? The company acknowledges that it needs to show a return to organic commercial growth, and believes that the organization is now more focused on product innovation that can achieve this goal, with evidence of this becoming apparent in 2008. The company also notes its strained relationship with the benefit consulting community, even though they have implemented actions to address this issue.

The PacifiCare integration was discussed, and while satisfied with the financial contribution, it created too much disruption for what was a relatively “fragile” platform. The company remains confident in its ability to close Sierra without any membership dispositions, and with far fewer integration challenges. UnitedHealth appears highly satisfied with its internal PBM capabilities, even though we see no need to make a decision anytime soon.

Shares of UNH currently trade at 16x and 14x 2007 and 2008 EPS estimates, are in-line with the group. Earnings growth differentiation is key for the long-term view with government-program franchise assisting.

UNH 1-yr chart

UNH 1-yr chart

Source: UnitedHealth Group CEO Updates Analysts On Long-Term Goals