Weighing UnitedHealth

Thursday's earnings will divert attention from the CEO shift.
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UnitedHealth

(UNH) - Get Report

has given investors plenty to ponder heading into Thursday morning's quarterly conference call.

Most analysts, at least, still care about the company's fundamental performance. A few even took the time this week to publish formal earnings previews, predicting that the company would once again meet or beat consensus estimates as its disciplined growth strategy continues to pay off.

But even those analysts sound distracted in the end. They inevitably acknowledge that ousted CEO William McGuire deserves credit for much of UnitedHealth's past success and feel consoled only by the fact that McGuire's accomplished sidekick, Stephen Hemsley, has been chosen to fill his shoes.

Yet some question, will UnitedHealth remain in Hemsley's able hands for long?

"According to industry newsletter

Health Market Survey

, sources close to UNH board meetings indicate that the company's board of directors had intended to support Ingenix CEO Richard Anderson to the post of CEO after the departure of Dr. William McGuire," UBS analyst Justin Lake wrote in a research note on Monday. "However, as a stipulation of his resignation, Dr. McGuire insisted on naming his replacement -- Stephen Hemsley -- to the position."

For its part, UnitedHealth has insisted that its board considered Hemsley alone for the top post.

Months ago, however,

TheStreet.com

suggested that Anderson had some chance of landing in that slot. After all, Anderson had CEO experience as the former leader of Northwest Airlines. And he had proven himself at UnitedHealth already, steering the company's Ingenix technology division to impressive new heights.

Moreover, Anderson looked clean. In contrast, both McGuire and Hemsley pocketed stock options that now seem clearly backdated. Still, Hemsley has been spared -- so far.

"The article in

HMS

indicates Mr. Hemsley's tenure will be exactly one year, after which he will step down to be replaced by Mr. Anderson," Lake wrote this week. "Mr. Hemsley's ability to step into

the CEO role has been a significant positive, in our view, given the potential disruption to management execution and client/partner sentiment toward the company. And any change could add execution risk going forward."

Still, Lake continues to hope for the best. He has a buy recommendation and a $62 price target on UnitedHealth's stock. His firm has provided investment-banking services to the company.

UnitedHealth's stock inched up 34 cents to $47.07 on Wednesday. The shares continue to trade near the low end of their 52-week range.

Credit Watch

Credit rating firms, particularly Moody's, have taken a cautious stand on the company.

Moody's this week downgraded UnitedHealth after news of McGuire's resignation. The firm believes that UnitedHealth could face "significant" financial penalties as a result of its improper stock option grants. It also frets over UnitedHealth's lack of current financials -- delayed for expected restatements -- and worries that bondholders could start making demands from the company in order to remedy the situation.

Meanwhile, Moody's feels that UnitedHealth's senior management team could remain distracted by the scandal and see its performance suffer as a result. The firm seems concerned by the stability of that management team as well.

The announced departures, including McGuire's, "are not viewed as critical by Moody's due to the deep bench strength of UnitedHealth's management team," Moody's wrote on Tuesday. "However, according to the rating agency, it is unclear that there will not be additional management resignations related to the stock options issues."

Stephen Zaharuk, vice president of Moody's, pointed to "significant corporate governance concerns" at the company.

"These are not issues that have quick fixes," Zaharuk stated, "and will require a cultural change at the board of directors and senior management level which will take some time to accomplish."

Stock Support

Stock analysts seem to cringe at the thought of sweeping changes, however. Notably, they have made clear that they want -- and even need -- Hemsley to remain at the helm so that they can once again focus most of their attention on the company's fundamental performance.

To their credit, they have offered investors some guidance in the meantime.

JPMorgan analyst William Georges looks for UnitedHealth to match Wall Street expectations with third-quarter earnings of 76 cents per share. Excluding stock option expenses, he notes, earnings should come in some 23% higher than they did a year ago.

Georges looks for continued pricing discipline and stable medical costs to help drive that growth. He expects some membership growth as well, particularly in UnitedHealth's government book of business, and believes that customer growth could pick up further in the coming year.

Georges has an overweight recommendation on UnitedHealth's stock. His firm has an investment-banking relationship with the company.

Manny Weintraub, principal of Integre Advisors, finds the stock attractive as well. Weintraub regularly hunts for proven growth stocks that have been hurt by short-term concerns.

"In the wake of the

recent legal report on UnitedHealth Group and its many sordid revelations, I continue to be a buyer of UNH," he wrote to

TheStreet.com

this week. "Despite the certainty of shareholder litigation, the price of settling up with Dr. McGuire and the overall distraction of management time, I still can't escape the fact that UnitedHealth Group will generate more than $4 billion in free cash flow this year.

"Once reason returns and the focus of investors is on earnings and growth -- not options and conflicts of interest -- UNH need only stay on its current course to justify a stock price of $68 a share, or even higher, next year."