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Can UnitedHealth (UNH) Sustain its Operational Strength?

Zacks Equity Research
Updated

On Jan 25, we issued an update research report on health insurer UnitedHealth Group Inc. UNH.

Overall, UnitedHealthcare had a positive year and finished with solid fourth-quarter growth on 300,000 plus members and across all its markets.

Its health services segment – Optum – delivered an exceptionally strong fourth quarter with revenues up 70% and earnings up 46% over the prior year. The segment has delivered a stellar performance since its inception in 2011, with revenues compounding 23% per year and operating earnings growing 34% per year. Optum is becoming an increasingly valuable business and now represents about 42% of UnitedHealth Group’s consolidated operating earnings outlook.

UnitedHealth also gave insights on 2016, which management believes saw a stronger start than 2015.

Over the past five years, UnitedHealth has also seen membership – well diversified across commercial, government programs and international offerings – growing by nearly 13.5 million people or 40%. The company’s membership is set to grow further in the Medicare Advantage, Medicaid as well as commercial plans.

Nevertheless, UnitedHealth is continuing to face losses in is individual public exchange business and guided that it expects to start the year with around 700,000 or fewer public exchange members.

Moreover, the company expects these numbers to steadily decline over the course of the year. In an effort to reduce its public exchange business, the company has withdrawn platinum products, increased prices, eliminated marketing and commissions, intensified clinical engagement and medical management with this membership group and reduced operating cost as deemed appropriate.

For 2017, the company expects cash flow of $10 billion and adjusted net earnings of $7.60 to $7.80 per share. UnitedHealth is a bellwether for the industry since it is the first to report earnings each season. Its results give an idea of the earnings performance by the other players.

While UnitedHealth currently holds a top rank in the industry, it is likely to face tough competition this year with the closure of the mergers of Anthem Inc. ANTM with Cigna Corp. CI and Humana Inc. HUM with Aetna Inc. AET.

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