# Profoundd archive — Epstein Files
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# Title:        J=P= Morgan North America Equity Research
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=== SUMMARY ===
J=P= Morgan North America Equity Research 18 June 2014 •, Medicare Advantage Increasing 2014-2017 Med Adv Enrollment Estimates Across the Managed Care Sector With 2015 Medicare Advantage (MA) plan bids submitted earlier this month, we review 2014 open enrollment results through the lens of our proprietary county- by-county benefit database and update our Medicare Advantage model for 2014- 2017. It has become increasingly clear that seniors find the Medicare Advantage value proposition compelling


=== EXTRACTED TEXT ===
J=P= Morgan North America Equity Research 
18 June 2014 
•, Medicare Advantage 
Increasing 2014-2017 Med Adv Enrollment Estimates 
Across the Managed Care Sector 
With 2015 Medicare Advantage (MA) plan bids submitted earlier this month, we 
review 2014 open enrollment results through the lens of our proprietary county-
by-county benefit database and update our Medicare Advantage model for 2014-
2017. It has become increasingly clear that seniors find the Medicare Advantage 
value proposition compelling and thus are willing to accept more benefit 
disruption than was previously appreciated. The 2014 open enrollment period saw 
MA penetration rates increase broadly across all levels of value-add, including 
100+ bps increases at the lowest levels (<$20 benefits PMPM). This was very 
much a positive surprise vs. our previously conservative estimates and is crucial to 
our increasingly constructive outlook for MA membership growth over the next 
several years. Post ow deep-dive on 2014 enrollment results, we take up our 
2015-2017 enrollment growth Ifs to 7.2%/8.1%/7.9% from 4.0%/7.1%/7.1% 
respectively, now reflecting an updated view of lower senior sensitivity to 
downward changes in Medicare Advantage benefit levels. In addition, we now 
reflect a modest level of share shift based on plan-specific Star ratings, with HUM 
expected to again take share in 2015 from UNH/WLP. Overall this analysis 
provides increased confidence in ow positive MA thesis, and we increase EPS 
estimates by 3%/7%/1% for 2014-2016 for HUM to $7.80/$9.121$10.43 
respectively, as 2014 moves in-line with consensus and 2015-2016 moves ahead of 
consensus by 3-5%. We reiterate our Overweight rating and $150 price target on 
HUM. 
• We are hosting a conference call today at I la ET to discuss our analysis. Dial 
in is 1-800-857-2942 (US), 1-517.623.4820 (outside US), Passcode: 
HEALTHCARE. To view ow detailed analysis, see accompanying slides: link. 
• Increasing our industry Med Adv enrollment estimates. We are increasing 
our 2015 industry enrollment growth est by 350 bps to 7.2% and our 2016/2017 
estimates by --100 bps each to 8.1% and 7.9%, respectively, reflecting greater-
than-anticipated senior interest in products with more moderate benefit levels. 
Our analysis indicates that geographies with average plan benefits less than $20, 
or 2% better than traditional Medicare, still saw penetration increase of 100+ 
bps during 2014 OEP, with moderately higher-than-anticipated increases in 
penetration across all benefit levels. In addition, we updated our estimates for 
MA rates going forward (-320 bps for the industry in 2015, followed by flat to 
slightly down in 2015.16). 
Equity Ratings and Price Targets 
Company Ticker Mkt Cap 
If ran) Price ($) Rating Price Target 
Cur Prey Cur Prey 
Aetna AET US 29,408.05 80.57 OW at 82.00 81.00 
Ogna CI US 24,702.03 90.00 OW ate 95.00 NC 
Hearth Net HNT US 3,240.12 40.04 N ilk 40.00 rite 
Hunan HUM US 19,256.62 122.93 OW ale 150.00 nit 
Uneetffleatlh UNH US 7'7,857.32 78.17 OW ale 90.00 ilk 
WellPeint VVLP US 31.033.16 106.06 N ale 114.00 ilk 
Source: Company data. Bloomberg. a Morgan estimates. rit = no change. Al vices as c4 17 Jun14. 
See page 16 for analyst certification and Important disclosures. 
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that 
the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single 
factor in making their investment decision. Managed Care / Health Care 
Hendon 
Justin Lake AC
Bloomberg JPMA LAKE <GO, 
Michael Newshel 
Neal Miniyar 
Andrew Toni 
J.P. Morgan Secumies LLC 
www.jpmorganmarkets.com 
EFTA00301317
Jushn Lake North America Equity Research 
18 June 2014 
J.P.Morgan 
• We expect market share to shift modestly again in 2015, benefitting HUM. 
While UNH and WLP saw slight Star improvement for 2015, both am still 
disadvantaged here vs. peers (UNH 3.5 & WLP 3.3 vs. for-profit peers in 3.84.0 
range), adding to competitive pressure when the bonus demo ends next year. 
Suboptimal Star ratings will likely drive a combination of above-average benefits 
reductions, physician network culling and plan exits (as well as potentially forcing 
UNH to add premiums to some zero-premium products). As a result, we 
conservatively estimate enrollment growth for 2015 to be flat for both UNH and 
WLP, with market share losses offsetting underlying market growth. Dissecting our 
county-by-county benefit database, we find that in 90% of those counties where 
UNH and WLP would see steepest cuts in 2015, HUM offers a competing product 
within the county. As a result, we are increasing our 2015 HUM MA enrollment 
growth forecast to 10% from 4% previously, assuming HUM can pick up 25% of 
UNH's and WLP's assumed market share losses. 
• Raising HUM 2015 EPS by 7% with de minimis updates to rest of coverage 
universe. We are raising ow HUM 2015/216 EPS estimates by 7%/1% for 
2015/2016 respectively, reflecting our increased market model projections coupled 
with updates to ow MA margin progression based on mgmt's latest commentary. 
With de minimis changes to the rest of ow coverage universe and our UNH MA 
update already incorporated into published #s (updated in our May 2014 note 2014 
Medicare Advantage Review and Thoughts on the Road Ahead) ow MCO PTs are 
largely left intact. 
• We reiterate our long-term thesis on MA and reiterate our $150 HUM PT. 
Following our analysis, we reiterate ow long-term constructive thesis on MA and 
ow Ovenveight rating / $150 PT on HUM, increasing 2015 estimates by 7%, 
owing to our higher estimates for MA enrollment growth (both higher est industry 
growth plus market share gains) and earnings. We continue to see a path to $10+ of 
EPS by 2016 for Humana with another $1+ of potential upside from additional 
capital deployment and PBM outsourcing optionality. 
• Our analysis is driven by proprietary actuarial database that translates publicly 
posted benefit information into the estimated 'value-add" of each MA plan vs. 
traditional fee-for-service — a key driver of enrollment. Combining this with 
county/plan specific CMS enrollment data allows us to estimate current and future 
rebates down to the county/plan/member level and roll up to membership -weighted 
averages for each company and the industry. This data fills a key gap for investors 
in understanding how the MA program can absorb the next few years of 
reimbursement cuts toward FFS parity without threatening long-term viability. 
Since our initial report in May 2013, we have released over 15 reports surrounding 
our MA value-add work. 
2 
EFTA00301318
Justin Lake 
Overweight 
Aetna Inc (AET:AET US) 
Company Data FYE Dec 2011A 2012A 2013A 2014E 2015E 
(Prey) 2015E 
(Corr) Price (5) 80.57 
Date Of Price 17 Jun 14 EPS Reported (S) 
52-week Range (5) 81.25-60.32 Q1 (Mar) 1.48 1.41 1.56 1.98A 
Market Cap (S mn) 29,408.05 Q2 (Jun) 1.39 1.38 1.62 1.64 
Fiscal Year End Dec Q3 (Sep) 1.46 1.61 1.61 1.62 
Shares CVS (inn) 365 Q4 (Dee) 1.03 1.00 1.45 1.26 
Price Target ($) 82.00 FY 5.36 5.39 6.24 6.50 6.77 6.80 
Price Target End Date 31-Dec-14 Bloomberg EPS FY (5) 5.16 5.13 5.88 6.54 7.21 North America Equity Research 
18 June 2014 
Aetna J.P.Morgan 
Some: Company data, Bloomberg... Morgan estimates. 
Investment Thesis, Valuation and Risks 
Aetna (Overweight; Price Target: $82.00) 
Investment Thesis 
Our Overweight rating on AET reflects below-average reform exposure and most 
importantly an increasing recognition of the company's ACO positioning. We see the 
Coventry acquisition as providing increased visibility on earnings for 2014/2015, 
with likely upside to synergies and the accretion estimates going into reform 
implementation uncertainty. 
Valuation 
We have an Overweight rating on Aetna. Our year-end 2014 price target of $82 is 
based on a PIE of 12x our 2015 cash EPS estimate, below the peer group average and 
slightly above its current relative valuation. 
Risks to Rating and Price Target 
Risks to our rating and price target for Aetna include the potential for medical cost 
trends to accelerate faster than expected, potential for commercial membership 
pressure to persist, and changes to the commercial pricing landscape and Medicare / 
Medicaid reimbursement. With an estimated third of earnings coming from the large 
group commercially insured segment, should larger full-risk employers choose to 
exit the health benefits market and instead offer employees a stipend to buy coverage 
in exchanges (a risk we see as fairly low), we believe Aetna would likely be the most 
negatively impacted plan in our coverage universe. 
3 
EFTA00301319
North America Equity Research 
18 June 2014 
Aetna: Summary of Financials 
Income Statement - Annual FY13A FY14E FY15E FY16E Income Statement - Quarterly 1O14A 2014E 3014E 4014E 
Operating revenue 47.195 56.841 61.842 67,587 Operating revenue 13,986A 14,249 14.278 14,349 
SG&A (8,373) (10,363) (11,413) (12,372) SG&A (2,490)A (2,547) (2,582) (2,745) 
Operating income 3,729 4,302 4.479 4,761 Operating ncome 1,322A 1,089 1,046 846 
Net Interest (income) /expense (313) (296) (309) (329) Net Interest (income)! expense (66)A (86) (62) (62) 
Other income / (expense) (215) (155) (145) (140) Other income; (expense) (40)A (38) (38) (38) 
Pretax income 3202 3.851 4,026 4.292 Pretax income 1,196A 964 946 745 
Income taxes (1,102) (1.858) (1.784) (1,850) Income taxes (510)A (411) (405) (332) 
Net income - GAAP 2241 2.344 2,386 2,582 Net Income GAAP 722A 591 579 451 
Diluted shares outstanding 359 360 351 342 Diluted shares outstanding 365A 360 358 357 
EPS 8.24 8.50 6.80 7.56 EPS 1.98A 1.64 1.62 1.26 
EPS - Recurring 8.24 8.50 6.80 7.56 En-Reaming 1.98A 1.64 1.62 1.26 
Balance Sheet and Cash Flow Data FY13A FY14E FY15E FY16E Ratio Analysis FY13A FY14E FY15E FY16E 
Cash and cash equivalents 1,412 2.127 1,974 1.919 Revenue growth 32.8% 20.4% 8.8% 9.3% 
Investments 21.115 21.537 21,988 22.407 EBIT growth 20.1% 15.4% 4.1% 6.3% 
Amounts receivable 1,522 1.552 1,583 1,615 EPS growth 15.7% 4.2% 4.6% 11.1% 
Current assets 30.654 34.695 37.408 40,644 
PP8E 722 704 718 742 SG&A ratio 17.7% 18.2% 18.5% 18.3% 
Goodwil 9248 9.118 9,197 9,286 Operating margin 7.9% 7.6% 7.2% 7.0% 
Total assets 49.872 53.834 58.520 59,958 Tax rate 34A% 43.1% 44.3% 43.1% 
Net margin 4.7% 4.1% 3.9% 3.8% 
Total debt 8253 8.114 8,451 8,998 
Total ledlites 35.848 38,573 40.217 42264 Debt! Capital (book) 37.0% 35.0% 34.1% 33.7% 
Shareholders' equity 14,028 15,061 16.303 17.695 
Return on assets (ROA) 4.9% 4.5% 4.3% 4.4% 
Return on equity (ROE) 18.3% 18.1% 15.2% 15.2% J.P.Morgan 
Soiree: Company reports and J.P. Morgan estimates. 
Note: Sin millions (except per-share data).Fiscal year ends Dec 
4 
EFTA00301320
North America Equity Research 
18 June 2014 
Cigna 
Overweight 
Cigna Corporation (CI;CI US) 
Company Data FYE Dec 2012A 2013A 2014E 2015E 
Price ($) 90.00 EPS Reported (5) 
Date Of Price 17 Jun 14 01 (Mar) 1.24 1.72 1.83A 
52-week Range (5) 91.63-67.87 02 (Jun) 1.49 1.78 1.79 
Market Cap (S mn) 24,702.03 03 (Sep) 1.69 1.89 1.91 
Fiscal Year End Dec 04 (Dee) 1.60 1.39 1.73 
Shares 01S (inn) 274 FY 6.02 6.79 7.26 7.91 
Price Target ($) 95.00 Bloomberg EPS FY S 5.91 6.87 7.31 8.04 
Price Target End Date 31-Dec-14 Soiree: Company data. Bloomberg. Morgan estimates. J.P.Morgan 
Investment Thesis, Valuation and Risks 
Cigna (Overweight: Price Target: 595.00) 
Investment Thesis 
We believe Cigna's solid business momentum and strong Medicare Advantage and 
International segment positioning continue to leave a positive risk/reward with the 
stock trading at —12x our 2014 EPS estimate, particularly given Cigna's below-
average exposure to the 2014 healthcare reform uncertainty. 
Valuation 
We rate Cigna Overweight. Our YE 2014 price target of $95 is based on a target PIE 
of 12x our 2015 EPS estimate. Cigna has historically traded at a discount to the 
group, but now that it has successfully executed on its PBM option, exited the 
VADBe reinsurance business, and carries less exposure to reform risk in the initial 
years, we think a narrow gap is warranted. 
Risks to Rating and Price Target 
As with Cigna's peers, medical cost trends could accelerate faster than expected and 
also, the pricing environment could get more competitive, although Cigna does have 
below-average exposure to the commercial risk segment. Enrollment growth in the 
Medicare Advantage segment may be more modest than expected with the potential 
for rate pressure and 2014 minimum MLR floors to compress margins. Cigna has 
above-average balance sheet exposure relative to its peers, and run-off books may 
require future capital infusions should future reserve studies show a need for more 
capital. 
EFTA00301321
North America Equity Research 
18 June 2014 
Cigna: Summary of Financials 
Income Statement - Annual FY13A FY14E FY15E FY16E Income Statement • Quarterly 1O14A 2014E 3014E 4014E 
Operating revenue 32,380 33,766 36,345 38,563 Operating revenue 8,4960 8,307 8,411 8,553 
SG&A (7.725) (8,140) (8,844) (9,369) SGSA (1,973)A (1,981) (2,053) (2,133) 
Operatng income 3,083 3,150 3,304 3,584 Operating income 852A 765 807 726 
Net Interest (income) /expense 1,164 1,202 1,281 1,323 Net interest (income) expense 277A 306 310 308 
Other income y (expense) • - Other income / (expense) • 
Pretax income 3,083 3,150 3.304 3,584 Pretax income 852A 765 807 726 
Income taxes (1,010) (1,173) (1230) (1.319) Income taxes (324)1 (282) (297) (270) 
Net income - GAAP 1,932 1,951 2.074 2,266 Net income - GAAP 501A 483 510 456 
Diluted shares outstanding 285 269 282 256 Diluted shares °Stewing 274A 271 267 263 
EPS 6.79 7.26 7.91 8.86 EPS 1.83A 1.79 1.91 1.73 
EPS - Recurring 6.79 7.26 7.91 8.86 EPS-Recurring 1.83A 1.79 1.91 1.73 
Balance Sheet and Cash Flow Data FY13A FY14E FY15E FY16E Ratio Analysis FY13A FY14E FY15E FY16E 
Cash and cash equivalents 2.795 2,559 3.628 4,746 Revenue growth 10.8% 4.3% 7.6% 6.1% 
Investments • - EBIT growth 14.1% 2.2% 4.9% 8.5% 
Accounts receivable • - EPS growth 12.7% 6.9% 9.0% 12.1% 
Current assets 24.478 25,591 27,966 30,569 
PPM 1,464 1,463 1.471 1,474 SG8A rate 23.9% 24.1% 24.3% 24.3% 
Goodell Operating margin 9.5% 9.3% 9.1% 9.3% 
Total assets 54.336 56,339 58,922 61,729 Tax rate 32.8% 37.2% 37.2% 36.8% 
Net margin 6.0% 5.8% 5.7% 5.9% 
Total deb! 5,247 5,232 5,232 5,232 
Total Iodates 43.659 45,424 46,776 48,254 Debt/ Cannel (book) 33.0% 32.4% 30.1% 28.0% 
Shareholders' equity 10,677 10,915 12,145 13,475 
Return on assets (ROA) 3.6% 3.5% 3.6% 3.8% 
Return on equity (ROE) 18.8% 18.1% 18.0% 17.7% J.P.Morgan 
Sowce: Company reports and J.P. Morgan estimates. 
Note: $ in millions (except per-share data).Fiscal year ends Dec 
6 
EFTA00301322
Justin Lake 
Neutral 
Health Net Inc (HNT;HNT US) 
Company Data FYE Dec 2011A 2012A 2013A 2014E 2015E 
Price ($) 
Date Of Price 
52-week Range (5) 
Market Cap (5 mn) 
Fiscal Year End 
Shares O/S (mn) 
Price Target ($) 
Price Target End Date 40.04 
17 Jun 14 
40.58-25.40 
3,240.12 
Dec 
81 
40.00 
31-Dec-14 EPS Reported (5) 
O1 (Mar) 0.61 0.10 
O2 (Jun) 0.76 0.19 
O3 (Sep) 0.85 0.38 
O4 (Dec) 0.90 0.36 
FY 3.09 1. 0.62 
0.52 
0.83 
0.24 
2.21 0.39A 
0.53 
0.69 
0.68 
2.27 3.05 
Source: Company data. Bloomberg. M. Morgan estimates. North America Equity Research 
18 June 2014 
Health Net J.P.Morgan 
Investment Thesis, Valuation and Risks 
Health Net (Neutral; Price Target: $40.00) 
Investment Thesis 
Health Net is the last essentially single state based publicly traded health plan, with 
nearly 90% of the company's current membership located in California. Although the 
state is a mixed bag (onerous regulatory environment represents a negative, while 
positives include substantial population including dual eligibles opportunity), in our 
view, Health Net remains an interesting asset of potential strategic interest. To the 
downside, the I H'12 earnings shortfall on a variety of medical cost / execution issues 
highlights the heightened underwriting and earnings volatility that accompanies 
single-state focused health insurers. 
Valuation 
We have a Neutral rating on Health Net. Our YE 2014 price target of $40 is based on 
a P/E of 13x ow 2015 EPS estimate, in line with the peer group. 
Risks to Rating and Price Target 
With Health Net one of the most-levered plans to the Dual Eligible opportunity, there 
could be downside risk should the demonstration programs be delayed or should 
results be pressured; there is also risk to the upside should Dual Eligible margins 
prove to be better than expected. Medical cost trends could accelerate or decelerate 
faster than expected, leaving downside / upside to our estimates. 
7 
EFTA00301323
Just., Lake North America Equity Research 
18 June 2014 
Health Net: Summary of Financials 
Income Statement - Annual FY13A FY14E FY15E FY16E Income Statement • Quarterly 1414A 2014E 3014E 4414E 
Operating revenue 10,984 14,047 18.091 19,062 Operating revenue 3,028A 3,516 3,670 3,834 
SGSA (1,317) (1,560) (1.857) (1.967) SGBA (386)A (379) (390) (406) 
Operatng income 245 352 497 522 Operating income 63A 87 103 99 
Net interest (income) /expense 37 11 12 14 Net interest (income)/ expense 3A 2 3 3 
Other income / (expense) • Other name / (expense) • 
Pretax income 282 362 509 535 Pretax income 66A AS 106 102 
Income taxes (104) (187) (280) (298) Warne taxes (35)A (07) (53) (52) 
Net income - GAAP 177 176 230 238 Net income GAAP 31A 42 53 50 
Diluted shares outstanding 80 77 75 73 Caged shares outstanding 81A 79 76 73 
EPS 2.21 2.27 3.05 3.28 EPS 0.39A 0.53 0.69 0.68 
EPS - Recurring 2.21 2.27 3.05 3.28 EPS - Recurring 0.39A 0.53 0.69 0.88 
Balance Sheet and Cash Flow Data FY13A FY14E FY15E FYISE Ratio Analysis FY13A FY14E FY15E FY16E 
Cash and cash equivalents 433 271 147 166 Revenue grovnh (1.5%) 21.9% 28.8% 5.4% 
Investments • EBIT growth 243.6% 43.1% 41.3% 5.0% 
Accounts receivable • EPS growth 114.2% 3.1% 34.4% 1.2% 
Current assets 2,920 3,751 4,627 4.886 
PPM 201 231 264 300 SG&A ratio 12.0% 11.1% 10.3% 10.3% 
Goodell Operating margin 2.2% 2.5% 2.7% 2.7% 
Total assets 3,929 4,765 5,679 5.980 Tax rate 31.1% 51.5% 54.9% 55.6% 
Net margin 1.6% 1.3% 1.3% 1.2% 
Total debt 499 499 499 499 
Total Iodates 2,300 3,342 4,139 4.371 Debt/ Capital (book) 23.5% 26.0% 24.5% 23.7% 
Shareholders' equity 1,629 1,423 1,541 1.609 
Return on assets (ROA) 4.5% 4.0% 4.4% 4.1% 
Rerun on equity (ROE) 11.1% 11.5% 15.5% 15.1% J.P.Morgan 
Sowce: Company reports and J.P. Morgan estimates. 
Note:5 in millions (except per-share data).Fiscal year ends Dec 
8 
EFTA00301324
Justin Lake 
Overweight 
Humana Inc (HUM:HUM US) 
Company Data FYE Dec 2012A 2013A 2014E 2014E 2015E 2015E 2010E 2018E 
(Prev) (Curd (Prey) (Cun) (Pnw) (Cool Prim (5) 122.93 
Date Of Price 17 Jun 14 EPS Reported (S) 
52-week Range (5) 127.17-81.15 01 (Mar) 1.49 2.95 2.35A 2.35A 
Market Cap (S mn) 19256.62 02 (Jun) 2.16 2.63 2.13 2.18 
Fiscal Year End Dec 03 (Sep) 2.62 2.32 1.96 2.03 
Shares 0/S (inn) 157 04 (Dee) 1.19 0.80 1.15 1.23 
Price Target ($) 150.00 FY 7.48 8.73 7.58 7.80 8.53 9.12 10.36 10.43 
Price Target End Date 31-Dec-14 Bloomberg EPS FY (5) 7.51 8.72 7.81 8.78 - 9.89 North America Equity Research 
18 June 2014 
Humana J.P.Morgan 
Source: Company data, Bloomberg. J.P. Morgan estimates. 
Investment Thesis, Valuation and Risks 
Humana (Overweight; Price Target $150.00) 
Investment Thesis 
Humana's unique earnings profile is the closest thing in the space to a Medicare 
Advantage pure play with -.60% of operating earnings levered to this segment and a 
strong market position. Future growth should come from a combination of baby 
boomer age-ins (turning 65 at the rate of 8,000 per day for the next 18 years), 
continued market share gains and potential shifts from employers to Medicare 
Advantage from self-funded employer retiree plans. Based on ow proprietary 
county-level projections of Medicare Advantage plan benefits, we have increased 
confidence the industry in general and also HUM in particular will be able to 
continue to profitably grow Medicare Advantage business despite several more years 
of reimbursement cuts related to the Affordable Care Act. Finally, the capital 
deployment opportunity continues to be one of the more interesting areas of 
optionality for Humana, in our view. 
Valuation 
Our 2014 year-end price target of $150 is based on a P/E multiple of .-14.5x our 2016 
earnings estimate, a premium to where the broader MCO group is trading. We see 
potential for the stock's P/E multiple to migrate toward a higher premium as focus 
shifts from execution to above average secular top-line growth rates in the high single 
digits with margin improvement potential from scale advantages post 2015 cuts. 
Risks to Rating and Price Target 
For Medicare, meaningful risks are associated with health reform regulations coming 
in more severe than anticipated, including Medicare Advantage cuts, MLR floor 
implementation and the ability for plans to price through the industry fee. Finally, 
Medical cost trend could accelerate/decelerate faster than expected. Much of the past 
few years has been characterized by low medical utilization across the sector, which 
has driven sizable earnings upside for the Managed Care group. Humana has 
benefited from a declining trend environment in all of its segments and there could 
be downside risk should the trend reverse. 
9 
EFTA00301325
North America Equity Research 
18 June 2014 
Humana: Summary of Financials 
Income Statement - Annual FY13A FY14E FY15E FY16E Income Statement • Quarterly 1O14A 2O14E 3014E 4414E 
Opemong revenue 41313 47,456 55230 59.625 Cperahng revenue 11,712A 11.691 11.910 12.142 
SGBA (6,355) (7.201) (7368) (8,495) SG8A (1,666)1 (1.697) (1.782) (2,056) 
Operating income 2304 2.367 2,775 3,039 Operating interne 721A 640 602 404 
Net interest (income) /expense (140) (140) (140) (140) Net interest (income)! expense (35)A (35) (35) (35) 
Other income I (expense) • • Other income / (expense) 
Pretax income 2,164 2,227 2,635 2,899 Pretax income 686A 605 567 369 
Income taxes (779) (1,011) (1,235) (1,322) Income taxes (318)4 (264) (250) (178) 
Net income - GAAP 1385 1216 1399 1,576 Net income - GAAP 368A 340 316 191 
Diluted shares outstanding 159 156 153 151 Diluted shares outstanding 1510 156 156 155 
EPS 8.73 7.80 9.12 10.43 EPS 2.35A 118 103 1.23 
EPS - Recurring 8.73 7.80 9.12 10.43 EPS- RecuMng 2.35A 118 103 1.23 
Balance Sheet and Cash Flow Data FY13A FY14E FY15E FY16E Ratio Analysis FY13A FY14E FY15E FY16E 
Cash and cash equivalents 1,138 1,421 1,505 2,097 Revenue growth 5.6% 14.9% 16.4% 8.3% 
Investments 7,889 9.477 11,103 12,059 BIT gowth 14.3% 2.7% 17.2% 9.5% 
Accounts receivable 1.280 1,538 1.802 1,957 EPS growth 16.8% (10.6%) 16.9% 14.4% 
Current assets 12,300 14,242 16.427 18,261 
PPM 1218 1,446 1,652 1,854 SG8A ratio 15.4% 15.2% 14.4% 14.2% 
Goodell 3.641 3.641 3,641 3,641 Operating margin 5.6% 5.0% 5.0% 5.1% 
Total assets 20,735 23,594 25.798 27,643 Tax rate 38.0% 45.4% 46.9% 45.6% 
Net margin 3.4% 2.6% 2.5% 2.6% 
Total debt 2.600 2,598 2,598 2,598 
Total Iodates 11,419 13,384 14.763 15,657 Debt/ Caplet (book) 21.8% 20.3% 19.1% 17.8% 
Shareholders' equity 9316 10,209 11.035 11,987 
Return on assets (ROA) 6.8% 5.5% 5.7% 5.9% 
Return on equity (ROE) 15.3% 123% 13.2% 13.7% J.P.Morgan 
Source: Company reports and J.P. Morgan esarnates. 
Note: S in millions (except per-share data).Fiscal year ends Dec 
10 
EFTA00301326
Juan, Lake 
Overweight North America Equity Research 
18 June 2014 
UnitedHealth 
UnItedliealth Group Inc (UNH;UNH US) J.P.Morgan 
Company Data FYE Dec 2011A 2012A 2013A 2014E 2015E 
Price ($) 78.17 EPS - Recurring ($) 
Date Of Price 17 Jun 14 01 (Mar) 1.22 1.31 1.16 1.10A 
52-week Range ($) 83.32-63.43 02 (Jun) 1.16 1.27 1.40 1.23 
Market Cap ($ bn) 77.86 03 (Sep) 1.17 1.50 1.53 1.61 
Fiscal Year End Dec CA (Dec) 1.17 1.20 1.41 1.51 
Shares 0/S (mn) 996 FY 4.73 5.28 5.50 5.45 5.82 
Price Target ($) 90.00 Source: Company data. Bloomberg. M. Morgan estimates. 
Price Target End Date 31-Dec-14 
Investment Thesis, Valuation and Risks 
UnitedHealth (Overweight; Price Target: $90.00) 
Investment Thesis 
While retrenching of Med Adv margins has slowed overall earnings momentum in 
2014/2015, we estimate that by 2015 more than two-thirds of earnings will be in 
higher growth businesses of Optum, Medicaid, and Med Adv. What coupled with 
best-in-class business momentum, diversification, and assets, we expect the stock to 
migrate toward an S&P multiple in the -15x range. 
Valuation 
Our Dec 2014 price target of $90 is based on a multiple of --15x our 2015E EPS, in 
line with the premium valuation vs. its peers it has historically maintained and 
reflecting its relatively high exposure to Medicare Advantage, which we think will 
benefit from long-term secular growth. 
Risks to Rating and Price Target 
Healthcare reform represents a pivot point for Managed Care. Considerable 
uncertainty remains around the 2014 healthcare reform implementation given the 
multiple moving parts such as exchanges, guaranteed issue, employer dumping, etc. 
Additionally, the potential for Optum earnings ramp may be slower than expected. 
Were the earnings ramp here to be more modest than expected (or extend beyond the 
2015 target), then that would represent potential downside risk to our numbers and 
investor sentiment. Finally, UNH faces pressures around medical cost trend 
acceleration, the potential for increased commercial pricing aggression, and multiple 
uncertainties in the Medicare Advantage market. 
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North America Equity Research 
18 June 2014 
UnitedHealth: Summary of Financials 
Income Statement - Annual FY13A FY14E FY15E FY16E Income Statement • Quarterly 1014A 2014E 3014E 4014E 
Operating revenue 122,489 127,088 130,732 138,219 Operating revenue 31,708A 31.565 31,740 32,075 
SG&A (19,362) (21,099) (22254) (23,271) SG8A (5,194)A (5,322) (5,115) (5,468) 
Operatng income 9,623 9.896 10,216 11,080 Operating income 2,054A 2,290 2,862 2,691 
Net interest (income) /expense 37 (27) (12) 8 Net interest (income)! expense 31A (18) (20) (20) 
Other income; (expense) (708) (649) (649) (651) Other inane! (expense) (160)A (162) (164) (164) 
Pretax income 8,915 9248 9,567 10,429 Pretax income 1,894A 2,128 2,699 2,527 
Income taxes (3,242) (3,893) (4,056) (4,304) Income taxes (795) (910) (1,126) (1,061) 
Net income - GAAP 5,673 5,355 5,513 6.125 Net income - GAAP 1,049A 1,217 1,573 1,466 
Diluted shares outstanding 1,023 983 947 912 Diluted shares outstanding 996A 987 978 970 
EPS 5.54 5.45 5.82 6.72 EPS 1.10A 1.23 1.61 1.51 
EPS-Recurring 5.50 5.45 5.82 6.72 EPS - Reaming 1.10A 1.23 1.61 1.51 
Balance Sheet and Cash Flow Data FY13A FY14E FY15E FY16E Ratio Analysis FY13A FY14E FY15E FY16E 
Cash and cash equivalents 7276 9.513 10,070 10,666 Revenue growth 10.7% 3.8% 2.9% 5.7% 
Investments 2.681 2.735 2,789 2.845 Egli growth 4.0% 2.8% 3.2% 8.4% 
Accounts receivable 2.387 2.434 2,483 2.533 EPS growth 5.0% (1.7%) 6.8% 15.4% 
Current assets 20,380 24,706 25,699 27,190 
PPM 3.945 4236 4.639 5.073 SG8A ratio 15.8% 16.6% 17.0% 16.8% 
Gootholl 28,779 28,739 29,348 30,126 Operating margin 7.9% 7.8% 7.8% 8.0% 
Total assets 81,882 86,419 89,034 92,516 Tax rate 36.4% 42.1% 42.4% 41.3% 
Net margin 4.6% 4.2% 4.2% 4.4% 
Total debt 16,860 16,765 16,765 16,765 
Total hadlibes 49,733 52,165 53,267 55,123 Debt/ Capital (book) 34.4% 32.9% 31.9% 31.0% 
Shareholders' equity 32,149 34,255 35,768 37,393 
Return on assets (ROA) 6.9% 6.4% 6.3% 6.7% 
Return on equity (ROE) 17.8% 16.1% 15.7% 16.7% J.P.Morgan 
Saute: Company reports and J.P. Morgan estimates. 
Note: S in millions (except per-share data).Fiscal year ends Dec 
12 
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North America Equity Research 
18 June 2014 
WellPoint 
Neutral WellPoint Inc (WLP:WLP US) 
Company Data FYE Dee 2011A 2012A 2013A 2014E 2015E 2015E 
Price ($) 108.06 (Prey) (Curr) 
Date Of Price 17 Jun 14 EPS Reported (S) 
52-week Range ($) 110.03-77.40 Q1 (Mar) 2.35 2.34 2.94 2.30A 
Market Cap ($ bn) 31.03 Q2 (Jun) 1.83 2.04 2.60 2.25 
Fiscal Year End Dec Q3 (Sep) 1.77 2.09 2.10 2.09 
Shares O/S (mn) 293 Q4 (Dee) 0.99 1.03 0.87 1.84 
Price Target ($) 114.00 FY • 8.52 8.51 9.54 9.53 
Price Target End Date 31-Dec-14 Source: Company data. Bloomberg. J.P. Morgan eabmatea. J.P.Morgan 
Investment Thesis, Valuation and Risks 
WellPoint (Neutral: Price Target $114.00) 
Investment Thesis 
WellPoint's strong brand and significant size provide meaningful competitive 
advantages. At over 33 million medical members nationwide, WellPoint is the largest 
health insurer from an enrollment perspective with its significant scale and broad 
reach providing the company with unique competitive advantages with regard to 
provider network discounts and breadth, SG&A leverage, and investment spend 
capacity. Furthermore, WellPoint holds a Blue Cross and/or Blue Shield license in 14 
states, providing the company with the strength of the Blues brand name as well as 
decreased competition from Not-for-Profit Blues, which are typically the most 
difficult competitor in any state. While execution in the Consumer business has been 
an issue, margins lag peers, leaving potential for improvement moving forward. The 
acquisition of Amerigroup adds not only significant growth potential in the Medicaid 
Managed Care and Dual Eligibles space but also a strong management team with a 
history of solid execution, in our view. 
Valuation 
Our Dec 2014 price target of $114 is based on a multiple of --I2x our 2015 earnings 
estimate, in line with the stock's historical average discount vs. the group. 
Risks to Rating and Price Target 
Individual and Small Group exposure leaves uncertainty around exchanges. We 
estimate that WellPoint derives nearly 30% of its 2012 earnings from the Individual 
and Small Group markets, which are the most likely to see meaningful disruption 
with the advent of exchanges in 2014. Improved execution presents upside risk after 
years of significant missteps with WellPoint's performance in recent years headlined 
by various self-inflicted missteps, most recently by its challenges in the California 
Medicare Advantage market. Integration and execution risk also may be heightened 
following the acquisition of Amerigroup, which should be accretive in its first year 
(2013). The potential for increased Commercial pricing aggression persists as pricing 
yields have outpaced commercial cost trends in recent years with publicly traded plan 
commentary and J.P. Morgan channel checks indicating that the pricing environment 
13 
EFTA00301329
Justka Lake North America Equity Research 
18 June 2014 J.P.Morgan 
remains largely rational outside of pockets of increased pricing aggression related to 
minimum medical loss ratio floors. Finally, medical cost trends could accelerate or 
decelerate faster than expected leaving downside/upside to our estimates. 
14 
EFTA00301330
Justin Lake North America Equity Research 
18 June 2014 
WellPoint: Summary of Financials J.P.Morgan 
Income Statement - Annual FY13A FY14E FY15E FY16E Income Statement • Quarterly 1O14A 2014E 3O14E 4O14E 
Operable revenue 70,522 73,220 79.005 Operating revenue 17.645A 18,233 18.569 18,773 
SG&A (10,061) (10.554) (10,963) SG8A (2.632)1 (2.631) (2.644) (2.648) 
Operable income 4,860 5.041 5,421 0 Operating income 1,333A 1,329 1,249 1,129 
Net interest (income) /expense 56 86 64 Net interest (income)! expense 38A 16 16 16 
Other income y (expense) • Other income / (expense) • • 
Pretax income 3,850 4.229 4,617 Pretax teams 1,130A 1,127 1,046 926 
Income taxes (1,200) (1.765) (2,014) Income taxes (439)1 (475) (447) (405) 
Net income - GAAP 2,650 2.464 2,603 Net income - GAAP 691A 652 600 521 
Diluted shares outstanding 304 287 273 265 Diluted shares outstaning 293A 290 287 284 
EPS 8.72 8.57 9.53 EPS 2.36A 2.25 209 1.84 
EPS-Recurring 8.52 8.51 9.53 10.62 EPS - RecuMng 2.30A 2.25 209 1.84 
Balance Sheet and Cash Flow Data FY13A FY14E FY15E FY16E Ratio Analysis FY13A FY14E FYISE FY16E 
Cash and cash equivalents 1,582 1.105 232 - Revenue growth 16.1% 3.8% 7.9% • 
Investments 19,543 21,942 27,034 EBIT growth 5.1% 3.7% 7.6% 
Accounts receivable 5,465 5.675 6,123 EPS growth 6.7% (1.7%) 11.1% 
Current assets 29,746 31,876 33,388 
PPS! 1,802 1.747 1,675 SOM ratio 14.3% 14.4% 13.9% 
Goodwd 21,6-U 21,632 29,307 Operating margin 6.9% 6.9% 6.9% 
Total assets 59,575 62,552 64,371 Tax rate 31.2% 41.7% 43.6% 
Net margin 3.7% 3.3% 3.3% 
Total debt 14,492 15,041 15,041 
Total ItatilitieS 34,809 37,634 39,099 Debt 1 Capital (book) 36.9% 37.6% 37.3% 
Shareholders' Cary 24,765 24,918 25,271 
Return on assets (ROA) 4.4% 4.0% 4.1% 8.7% 
Return on equity (ROE) 10.7% 9.8% 10.4% 22.3% 
Smrce: Company reports and J.P. Morgan estimates. 
Note: Sin millions (except per-share data).Fiscal year ends Dec 
15 
EFTA00301331
Justil Lake North America Equity Research 
18 June 2014 J.PMorgan 
Analyst Certification: The research analyst(s) denoted by an "AC" on the cover of this report certifies (or, where multiple research 
analysts are primarily responsible for this report, the research analyst denoted by an "AC' on the cover or within the document 
individually certifies, with respect to each security or issuer that the research analyst covers in this research) that (I ) all of the views 
expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no pan of 
any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views 
expressed by the research analyst(s) in this report. For all Korea-based research analysts listed on the front cover, they also certify, as per 
KOFIA requirements, that their analysis was made in good faith and that the views reflect their own opinion, without undue influence or 
intervention. 
Important Disclosures 
• Market Maker: JPMS makes a market in the stock of UnitedHealth. 
• Lead or Co-manager: J.P. Morgan acted as lead or co-manager in a public offering of equity and/or debt securities for Aetna, 
Humana, UnitedHealth, WellPoint within the past 12 months. 
• Beneficial Ownership (1% or more): J.P. Morgan beneficially owns I% or more of a class of common equity securities of 
WellPoint. 
• Client: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients: Aetna, Cigna, Health Net, 
Humana, UnitedHealth, WellPoint. 
• Client/Investment Banking: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as investment 
banking clients: Aetna, Cigna, Humana, Unitedtlealth, WellPoint. 
• Client/Non-Investment Banking, Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following 
company(ies) as clients, and the services provided were non-investment-banking, securities-related: Aetna, Cigna, Health Net, Humana, 
UnitedHealth, WellPoint. 
• ClientRion-Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients, 
and the services provided were non-securities-related: Aetna, Cigna, Health Net, Humana, Unitedtlealth, WellPoint. 
• Investment Banking (past 12 months): J.P. Morgan received in the past 12 months compensation from investment banking Aetna, 
Cigna, Humana, Unitedilealth, WellPoint. 
• Investment Banking (next 3 months): J.P. Morgan expects to receive, or intends to seek, compensation for investment banking 
services in the next three months from Aetna, Cigna, Health Net, Humana, UnitedHealth, WellPoint. 
• Non-Investment Banking Compensation: J.P. Morgan has received compensation in the past 12 months for products or services 
other than investment banking from Aetna, Cigna, Health Net, Humana, UnitedHealth, WellPoint. 
Company -Specific Disclosures: Important disclosures, including price charts, are available for compendium reports and all J.P. Morgan-
roverod COMIlalliiN by visitine httiwilinmm contiresearcWdisclosures,  
callinL or e-mailing 
with your request. J.P. Morgan's trategy, et meal, and • • ch teams may 
screen companies not covered by IP. Morgan. For important disclosures for these companies, please call or e-mail 
Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe: 
J.P. Morgan uses the following rating system: Overweight (Over the next six to twelve months, we expect this stock will outperform the 
average total return of the stocks in the analyst's (or the analyst's team's) coverage universe.] Neutral [Over the next six to twelve 
months, we expect this stock will perform in line with the avenge total return of the stocks in the analyst's (or the analyst's team's) 
coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperfonn the average total return of 
the stocks in the analyst's (or the analyst's team's) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if 
applicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy 
reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not a 
recommendation or a rating. In our Asia (ex-Australia) and U.K. small- and mid-cap equity research, each stock's expected total return is 
compared to the expected total return of a benchmark country market index, not to those analysts' coverage universe. If it does not appear 
in the Important Disclosures section of this report, the certifying analyst's coverage universe can be found on J.P. Morgan's research 
website, www.jpmorganinarkets.com. 
Coverage Universe: Lake, Justin: Aetna (AFT), Centene (CNC), Cigna (CI), Community Health Systems (CYH), DaVita HealthCare 
Partners Inc (DVA), HCA (HCA), Health Net (HNT), Humana (HUM), LifePoint (LPNT), Molina (MOH), Surgical Care Affiliates 
(SCAI), Tenet (THC), UnitedHealth (UNIO, Universal Health Services Inc. (UHS), WellPoint (WLP) 
16 
EFTA00301332
Juslin Lake North America Equity Research 
18 June 2014 
J.P. Morgan Equity Research Ratings Distribution, as of March 31, 2014 
Overweight Neutral 
(buy) (hold) Underweight 
(sell) 
J.P. Morgan Global Equity Research Coverage 44% 44% 11% 
IB clients° 58% 49% 40% 
JPMS Equity Research Coverage 45% 48% 7% 
IB clients° 78% 679/. 60% J.P.Morgan 
*Percentage of investment banking clients in each rating category. 
For purposes only of FINRAJNYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold 
rating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation arc not included in the table 
above. 
Equity Valuation and Risks: For valuation methodology and risks gcsaciated with covered companies or price targets for covered 
companies, please see the most recent company -specific research report at httelAvww.ipmorganinarkets.com  contact the primary analyst 
or your J.P. Morgan representative, or emai 
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upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues. 
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17 
EFTA00301333
North America Equity Research 
18 June 2014 J.P.Morgan 
Ltd. is authorized by the Capital Market Authority of the Kingdom of Saudi Arabia (CMA) to carry out dealing as an agent. arranging. advising and 
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