UnitedHealth Poised for Growth on Diversified Business

On Sep 30, we issued an updated research report on U.S. health insurer, UnitedHealth Group Inc. (UNH).

UnitedHealth is one of the biggest and most diversified health insurers in the U.S. It holds a huge market share in the Medicare market, which is expected to see a boom in the coming years as millions of Americans enter retirement.

UnitedHealth is also expanding its accountable care contracts like other players Aetna Inc. (AET), Humana Inc. (HUM) and Cigna Corp. (CI) which helps in effective delivery of care at a reasonable cost. The company has set an aggressive target of garnering more than $65 billion in value-based contracts with care providers by 2018.

UnitedHealth’s health service business – Optum – is an essential part of its diversification strategy. It gives UnitedHealth a competitive advantage through its medical management services and analytics capabilities.

UnitedHealth is also expanding its business internationally. Geographical diversification features prominently in the company’s plan of action to overcome restrictions imposed by the Health Care Reform in the U.S.

On the tepid side, UnitedHealth is also witnessing increased operating costs due to high medical and operating cost pressure related to the Affordable Care Act.

Also, the government’s underfunding of the Medicare advantage program could affect overall results over the coming quarters.

Following strong results for first half of 2014, the company raised its 2014 revenue outlook to $130 billion from the previous forecast of $128 billion to $129 billion. It also increased its 2014 earnings projection to a tighter range of $5.50 to $5.60 from $5.40 to $5.60.

The company boasts a strong balance sheet with a moderate leverage ratio and strong cash flow. It also engages in a shareholder friendly strategy of capital management via share buyback and dividend payment.