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Size clearly matters in the competitive managed care industry.

Take a look at


(UNH) - Get UnitedHealth Group Incorporated Report

. The company seems more popular than ever after bulking up with its recent acquisition of Oxford Health. The same holds true for


(ATH) - Get Athene Holding Ltd. Class A Report




, which are ready to flex their collective muscles as they race toward a major union of their own.

Even Goldman Sachs analyst Matthew Borsch -- who is cautious on the sector -- likes these two heavyweights. He recommends buying UnitedHealth and fellow giant



, because he favors large-cap, diversified players. He has yet to rate Anthem-WellPoint, with his firm involved in the deal, but applauds the merger in the meantime.

The "combination makes sense on multiple levels," Borsch wrote on Tuesday, after California regulators cleared the way for the merger to go through.

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Anthem climbed 1.3% to $94.05 on Thursday. WellPoint was up 1.2% to $116.65. Both stocks have jumped more than 30% since this time last year.

Anthem-WellPoint is now poised to exceed even UnitedHealth in size, according to figures cited in a recent report by

Health Affairs

. But Prudential analyst David Shove nevertheless places UnitedHealth in a class all of its own.

Shove gushed about the company following its annual investor day this week.

"Attending a UnitedHealth Group investor day is nothing like listening to any other company in the health insurance space," wrote Shove, who has an overweight rating on the stock. "The management has BIG aspirations, limited only by the number of things that one can think of that are wrong with health care delivery in America. This stuff is way beyond health insurance."

Shove now has a $95 target price on UnitedHealth's stock, which slipped 14 cents to $80.82 on Thursday. The stock has already rocketed 63% in a year.

Borsch quickly gave UnitedHealth some credit as well. He noted that UnitedHealth has managed to grow operating profits by nearly five-fold over the past five years. He also said the company seems positioned to "handily exceed" the 2005 targets it laid out three years ago. Looking ahead, he said, the company expects to generate $80 billion in revenue -- up from an estimated $45 billion next year -- in 2010.

"As expected," he wrote, "UNH outlined the opportunities for growth across its different business segments, highlighting that potentially huge growth opportunities lie ahead."

Still, Borsch sounds far more bearish when talking about the industry in general. He believes the sector's long bull run could finally lose steam in 2005. He warns that numerous companies are seeking to expand their enrollment numbers at a time when employers are still scaling back on health care coverage. Thus, he believes that some players could start cutting prices in order to hit growth targets.

Already, Borsch recommends steering clear of four companies --




First Health




(CI) - Get Cigna Corporation Report


Health Net


-- that he considers particularly threatened by industry pressures.

But a second report published by

Health Affairs

suggests that dramatic swings in the underwriting cycle -- which led to clear booms and busts in the industry -- could be a thing of the past. Even so, the study indicates that managed care companies could face future difficulty hitting goals and, thus, pleasing Wall Street.

"Now that we have a mature industry with stagnant aggregate enrollment growth, it remains to be seen whether investors and plans will be satisfied with earnings growth from additional consolidation and from new technologies," the report states. "Indeed, with most turnarounds completed, most public companies are seeking enrollment growth this year -- which will be difficult to achieve in the aggregate."

An accompanying report, examining the "remarkable shrinkage" in managed care players, sounds even more cautious. In that report, James Robinson, a health economics professor at the University of California at Berkeley, warns that "competition without competitors will not deliver the desired incentives for health care improvement" and foresees a possible backlash down the road. Either new entrants will revitalize the market, Robinson predicts, or politicians could step in.

Either way, he concludes, the industry's long rally could be headed for an end.

"Double-digit growth in premiums, earnings and equity share prices are examples of unsustainable trends," Robinson states. And "one of the great theorems of economics, and of life generally, is that unsustainable trends will not be sustained."