Buoyed By Optum, UnitedHealth Maintains Strong Growth

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UnitedHealth Group

UnitedHealth Group (NYSE:UNH), the largest health insurer in the U.S., announced strong earnings figures for the third quarter on Thursday. (UnitedHealth Group Reports Third Quarter Results, News Release, UnitedHealth investor Relations)) Another quarter of solid performance across business lines, including UnitedHealthcare and star performer Optum, lifted the company’s revenue growth to double digits. The UnitedHealthcare business includes the company’s private health insurance, Medicaid and Medicare segments, while the Optum division covers healthcare services such as pharmacy benefits management and health care services. UnitedHealth’s strategy to provide integrated health care solutions seems to be unfolding well, as its recent performance data suggests that it should easily be able to meet its annual revenue guidance of $154 billion in 2015.  The company expects earnings per share (EPS) for 2015 to be in the range of $6.26-6.35.

During the third quarter, UnitedHealth’s revenues saw a 27% year-over-year (y-o-y) jump, which was driven by broad growth as well as the Catamaran acquisition. However, earnings from operations of $3 billion for the quarter were constrained by a net margin of 3.8% due to an increase in pharmacy services business as well as increased government benefits-related business during the quarter. ((SEC 8-K Filing, October 15 2015))

We have a price estimate of $118 for UnitedHealth’s stock, which is slightly lower than the current market price.

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See Full Analysis For UnitedHealth Group Here

Optum Leads The Pack, Again

All three Optum businesses – OptumHealthOptumInsight and OptumRx – delivered impressive growth during the quarter. This led to a 61% y-o-y increase in revenues of $19.3 billion from Optum and a margin of 5.9%, which was primarily affected by a higher proportion of low-margin PBM business during the quarter.

The biggest source of growth during the quarter was the acquisition of Catamaran, resulting in 80% y-o-y growth in OptumRx, UnitedHealth’s PBM business. This is the first time the company has included Catamaran’s numbers in its quarterly results. Excluding this, there was 15% y-o-y organic growth for UnitedHealth’s PBM business. The acquisition has made UnitedHealth one of the largest players in the PBM market, with about a 20% market share. During the third quarter, the company saw scripts volume of 226 million, a 59% y-o-y increase.

The company’s progress with respect to its strategy of delivering holistic health care solutions through Optum is reflected in its performance results for the last several quarters. One of the key drivers has been the company’s focus on five key areas of health care services – clinical care, pharmacy care services, information and technology solutions, government services and international business. [1] In addition to an increase in revenues, the company has also strengthened its client base even as it continues to add more clients – individuals as well as at the enterprise level. Going forward, we believe that these strong fundamentals, the execution of a comprehensive approach, and a greater number of market opportunities should keep the division’s growth momentum strong.

Private Health Insurance Sustains Momentum

The private employer and individual health insurance business, after bouncing back last quarter, continued to add customers in the third quarter. 130,000 new members were added during the quarter, taking the tally to 750,000 new customers since September 2014 as the company expanded its presence on the health insurance exchanges. Combined with price increases, private health insurance revenues touched almost $12 billion during the quarter.

Medicare And Medicaid  Remain Strong

The addition of 65,000 new customers led to a 7% y-o-y increase in revenues to over $12 billion from the Medicare and Retirement division during the quarter. Meanwhile, with the addition of 95,000 customers to the Medicaid program, UnitedHealth has increased the number of people it serves in the segment by 385,000 since September 2014. This was a major driver behind the 21% y-o-y increase in revenues to $7.4 billion during the quarter.

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Notes:
  1. UnitedHealth Third Quarter 2015 Earnings Call, Webcast Remarks, UnitedHealth Investor Relations []