UnitedHealth Mid Year Review: Stock Up 15% YTD On Robust Optum Growth, Raised Guidance

UnitedHealth Group‘s (NYSE:UNH) stock is up 15% year-to-date (YTD) following solid first and second quarter results and raised full year guidance. The largest health insurer in the U.S. reported strong figures in the six months ending June 30, with revenues growing over 26% year-over-year (y-o-y) to $91 billion and operating income rising by 11.5% y-o-y to $6.2 billion. This was largely driven by solid performance of the company’s pharmacy services business, Optum. In terms of earnings, the company’s adjusted earnings grew about 15% to $3.77 per share. 

Buoyed by the strong quarterly results, the company raised its guidance for full year 2016 and now expects to cross $182 billion in consolidated revenue for the year. In terms of earnings per share, UnitedHealth raised its full year guidance by $0.20 to $7.80-7.95 owing to lower expected income tax rate and intangible amortization.

Segment Info: Optum Continues Robust Growth

The UnitedHealth Group operates two major businesses- UnitedHealthCare and Optum. 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 (PBM) and health care services.

The UnitedHealthCare division posted revenues of $73.5 billion in the first six months of the year, an increase of 12% year over year (y-o-y). This was primarily driven by an increase of 2.1 million customers in the domestic medical benefits markets in the last 12 months. In terms of profitability, the division’s operating margin declined by 80 basis points to 5.2% owing to full year Affordable Care Act (ACA) plan losses of $200 million in the second quarter.

On the other hand, Optum again reported solid results. Segment revenues grew 53% y-o-y to over $40 billion driven by growth across all three sub-segments- OptumHealth, OptumInsight and OptumRx.

OptumHealth revenues grew by 20% y-o-y to $8 billion in the first two quarters, primarily driven by a 5% increase in customers served to 80 million. OptumInsight revenues grew by 23% to $3.4 billion with its contract backlog growing from $10.4 billion at the end of December 2015 to $11.3 billion at the end of June 2016. The biggest source of growth was OptumRx, UnitedHealth’s PBM business, with revenues growing 71% y-o-y to over $29 billion in the first six months of 2016. The increase in revenues was driven by growth in pharma care services and recent acquisitions- Catamaran and Helios.

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