UnitedHealth Group on Wednesday slashed its full-year earnings outlook because of tough competition in the health benefits business and said it would pay more than $900 million to settle lawsuits related to past stock options practices.
But its shares rose 5 percent on hopes there may be no more bad news in a stock that has fallen some 56 percent so far this year on concerns about its prospects and operational missteps.
"The market was expecting this," Edward Jones analyst Aaron Vaughn said of the lowered earnings forecast. "As it is now, they've taken their medicine, hopefully."
Health-insurer shares, led by UnitedHealth, the largest U.S. health insurer by market value, have been under pressure all year amid a slew of earnings warnings related to problems in various lines of business.
Vaughn also said news of the settlement might be helping the shares, because "that's a chapter closed, so there's a positive benefit to that that you don't have this unknown liability hanging out there."
UnitedHealth cut its earnings-per-share forecast to $2.95 to $3.05 before special items, down from an earlier outlook of $3.55 to $3.60.
The company said an intensely competitive commercial business environment was putting greater-than-expected pressure on premium yields.
Efforts to hold the line on premiums were also hurting the company's membership rolls.
UnitedHealth said it expected full-year revenue of $81 billion, in line with Wall Street estimates.
"During the second quarter, our risk-based businesses produced a lower level of gross margin than expected, and we also experienced a continuation of the pressures we saw in the first quarter," Chief Executive Stephen Hemsley said in a statement.
The Minnesota-based company also cited margin pressures from high costs in its drug-coverage and special needs plans for seniors.
UnitedHealth said it would pay $895 million to settle a federal securities class-action lawsuit involving the mammoth California Public Employees' Retirement System over historical stock options practices.
The company also said it had agreed to resolve an Employee Retirement Income Security Act class-action litigation, also relating to stock options, for which it will pay $17 million.
The company said it would take a charge of 46 cents per share in the second quarter related to the settlements.
In April, UnitedHealth posted a lower-than-expected first-quarter profit and slashed its full-year earnings forecast because of falling revenue growth and margins for its commercial plans for employers and Medicare plans for the elderly.
UnitedHealth cut membership forecasts in both areas.
The company is due to report second-quarter results on July 22, when it also plans to provide a full report on its outlook.
UnitedHealth shares rose $1.37 to $27 in premarket trading, from a Tuesday close of $25.63 on the New York Stock Exchange.