(UNH) UnitedHealth Group Takes Department of Defense to Court

UnitedHealthcare, a division of UnitedHealth Group Inc. (UNH) sued the U.S. Department of Defense (DoD) in the U.S. Court of Federal Claims after it lost the $23.5 billion 5-year Tricare South contract to Humana Inc. (HUM).

The Tricare South contract covers 3 million military members and their families in 11 southern states. In July 2009, UnitedHealth won the contract form Humana. But after continuous protests by Humana, DoD reviewed its decision and awarded the $23.5 billion 5-year contract to Humana in February 2011.

Updating the TRICARE West Region contract, earlier, in April 2011, DoD invited fresh bids for TRICARE West Region contract after UnitedHealthcare’s Military & Veterans business raised an objection. As such, UnitedHealth will get another chance to win a $17 billion contract to provide health benefits to soldiers in 21 western states, including Minnesota.

Together, the two contracts would have net more than $40 billion over six years, including a handsome management fees.

UnitedHealth Group reported first quarter 2011 net earnings of $1.22 per share, well ahead of the Zacks Consensus Estimate as well as year-ago earnings, aided by strong revenue growth from UnitedHealthcare as well as Optum .

At its earnings conference call, the company guided its 2011 revenues to gross $101 billion and earnings in the range of $3.95 to $4.05 per share.

The Zacks Consensus Estimate for first-quarter 2011 is 93 cents per share. For full years 2011 and 2012, the Zacks Consensus Estimates are, respectively, $4.19 and $4.65.

We maintain a Neutral recommendation on UnitedHealth Group over the long term. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the stock over the near term.

Headquartered in Minnesota, UnitedHealth Group Inc. through its diversified businesses, leverages core competencies in advanced technology-based transactional capabilities; health care data, knowledge and information; and health care resource organization and care facilitation to improve access to health and well-being services, simplify the medical experience, promote quality and make health care more affordable. It competes with Aetna Inc. (AET) and WellPoint Inc. (WLP).

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