UnitedHealth Revises Outlook As Growth Momentum Continues

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UnitedHealth Group

UnitedHealth Group (NYSE:UNH), the largest health insurer in the U.S., announced strong growth figures for the second quarter on Thursday. The company reported 11% year-over-year (y-o-y) growth in revenues of over $36 billion for the three month period as it continued to experienced impressive double-digit growth across businesses. [1] Operating earnings for the quarter grew by 19% y-o-y as the company added 175,000 new customers during the quarter. Growth was recorded across divisions, with strong numbers from the Optum division leading the pack yet again. Net margins remained stable at 4% compared to the first quarter, but a 10 basis point improvement from a year ago. As a result, the company’s net income grew 15% y-o-y. The medical care ratio decreased by 20 basis points y-o-y to 81.4%. [2] Higher Affordable Care Act (ACA) related fees resulted in a 90 basis point jump in taxes for the quarter over the previous year to 42.2%.

UnitedHealth again revised its financial outlook for 2015 as a result of its strong quarterly performance. The company now expects to earn nearly $154 billion in annual revenues, up from $143 billion from the March quarter outlook. Now the company expects earnings per share (EPS) for 2015 to fall between $6.26-6.35 per share range, an increase over the $6.15-6.30 per share range estimated earlier. [3] This increase includes the company’s share repurchase program as well as the acquisition costs relating to the Optum-Catamaran deal. Additionally, the company now expects to end the year 2015 with $8.6 billion in cash flows from operations.

We have a price estimate of $114 for UnitedHealth’s stock, which is slightly lower than the current market price.

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Private Health Insurance Growing Confidently

The growth momentum in enrollments due to UnitedHealth’s expanded presence on health insurance exchanges in continued during the second quarter. Additionally, product enhancements  have also led to improved growth in the division. Since the second quarter of 2014, about 650,000 new customers have signed up with UnitedHealth. Revenues in the second quarter grew by 10% y-o-y driven by growth in enrollments and price increases.

Medicaid and Medicare Divisions Keep Growing

The Medicare and Retirement division‘s revenues increased by 7% y-o-y to $12.6 billion during the second quarter. Growth was fueled by an increase in the number of customers enrolled. Medicare, which serves people aged 65 and above, enrollments rose by 505,000 during the first half of 2015 compared to a year ago.

Revenues from the Medicaid division increased 25% y-o-y to $7.2 billion during the second quarter on the back of increased enrollments and better product offerings. During the first six months of 2015, UnitedHealth crossed 5.2 million customers, growing by 155,000 customers compared to a year ago.

Optum Continues To Roll

With all three Optum businesses, OptumHealth, OptumInsight and OptumRx, raking in double digit growth, revenues from the division grew 16% y-o-y to over $13 billion during the second quarter. Operating income grew an impressive 19% y-o-y to $864 million during the quarter as operating margins improved by 20 basis to 6.4% compared to a year ago.

OptumHealth turned out to be the best performer during the second quarter with a massive 33% y-o-y jump in revenues to $3.4 billion. This was primarily due to an increase in the number of patients served through OptumHealth’s healthcare delivery services as well as the expansion of health management services. OptumRx, UnitedHealth’s pharmacy benefits management (PBM) business, continued its double-digit growth streak in the second quarter as well. OptumRx revenues grew 11% y-o-y on the back of a 4% y-o-y rise in scripts volume to 150 million during the quarter. As the company completes the acquisition of Catamaran by 2016, the combined market share should jump to about 20% for the combined entity in terms of scripts volume in the U.S.

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Notes:
  1. UnitedHealth Group’s CEO Stephen Hemsley on Q2 2015 Results, Seeking Alpha []
  2. SEC 8-K Filing []
  3. UnitedHealth Group Reports Second Quarter Results, Investor Relations []