The nation's largest health insurer looks like the very picture of health itself.

Quarter after quarter,

UnitedHealth

(UNH) - Get Report

keeps pumping out strong results despite a sick economy. And the company -- which delivered another record quarter on Thursday -- has made it look as effortless as breathing.

"You had a return on equity of 40%," Fulcrum analyst Sheryl Skolnick noted in UnitedHealth's third-quarter earnings call on Wednesday. "How much higher can you go? ... That seems pretty powerful to me."

Even UnitedHealth CEO William McGuire -- who always aims high -- concedes the company would be challenged to top that metric, at the very least. But he assured investors that UnitedHealth's best days are far from over.

"The horizon for ... gains extends out many years," he said.

For now, the market is content to celebrate UnitedHealth's latest quarter. Shares of the big insurer were up 4.2% to $53.47 -- within $3 of an all-time high -- after Thursday's earnings report.

Growth Spurt

For the 17th consecutive quarter, UnitedHealth grew profits by more than 30%.

The health care giant posted third-quarter profits of 77 cents a share -- topping expectations by 3 cents -- that were a full 38% higher than a year ago. The company also delivered a $200 million upside surprise in top-line growth. Revenue grew 16% to $7.24 billion during the period.

All told, UnitedHealth is on track to increase profits by 37% in 2003. When posting third-quarter results, the company hiked its guidance for both this year and next. It now expects to generate profits of $2.91 -- up from $2.85 -- in 2003 and go on to grow earnings by another 21% to 22% next year. Although next year's forecast represents a slowdown in the company's explosive profit growth, it's still better than Wall Street had hoped for. Analysts were anticipating up to 13 cents less than the $3.52 to $3.55 UnitedHealth is now promising.

"I know these are big numbers," McGuire acknowledged. "But we've had big numbers every year ... and we plan to meet those."

Room to Please

In fact, UnitedHealth tends to offer conservative guidance that -- more often than not -- leaves plenty of room for nice upside "surprises."

For example, the company has figured none of the benefits -- but all of the drawbacks -- of an economic recovery into its 2004 guidance. It is not counting on membership growth, which has been hurt in recent quarters by commercial layoffs, to improve with the economy. But it is assuming that customers will more heavily utilize their coverage -- hiking UnitedHealth's costs -- under a recovery scenario.

UnitedHealth also has excluded anticipated profits from its upcoming acquisition of

Golden Rule

, even though it expects the asset to boost earnings "on day one."

"We never include acquisitions" in guidance, McGuire explained.

Nonetheless, some people actually worry about UnitedHealth's conservative forecasts.

Once again, UnitedHealth benefited this quarter from a "favorable development" in medical cost trends.

Specifically, UnitedHealth previously overestimated the rise in medical costs and was therefore able to boost third-quarter profits by $20 million. While the company reported a much larger -- $50 million -- gain from released reserves last quarter, analysts continue to puzzle over this year's growth in that particular area.

"It's a little bit higher than we've seen in prior years," Skolnick pointed out.

But UnitedHealth defends its reserving practices as both consistent and appropriate. Although such reserves lifted second-quarter profits by nearly 15%, the company downplays the overall impact to earnings.

"The year-to-date effect of changes in estimates

are $130 million, or 0.7% of the $18 billion in medical costs reported for 2002," the company's latest earnings release stated. "This change in estimate of expenses incurred within the first half of 2003 had no effect on 2003 year-to-date earnings."

Instead, the company credits its overall business strategy for record-breaking revenues, earnings and operating margins across all of its different segments. And it promises even brighter days ahead.

"Our outlook for next year includes strong revenue and earnings performance," McGuire said. "Our strong and consistent results notwithstanding, UnitedHealth Group businesses have not yet obtained optimum performance for either customers or shareholders."