On Oct 19, we issued an updated research report on UnitedHealth Group, Inc. UNH.
UnitedHealth, one of the biggest players and the bellwether of the health insurance industry, reported third-quarter beat on both earnings and revenues.
Earnings per share came in at $1.65, 2 cents above the Zacks Consensus Estimate and 1.2% higher than the year-ago earnings. Revenues rose 26.5% year over year to $41.5 billion, breezing past the Zacks Consensus Estimate of $39.9 billion. Growth was broad based with a double-digit increase in the revenues for Optum, the health services segment.
The company’s long-term growth strategy of reaping earnings from Optum is paying off. Optum's revenues of $19.3 billion grew 61% year over year in the third quarter.
The company said at the recent conference call that it foresees growth on public exchanges going forward and will expand to 11 new markets in 2016. As far as Accountable Care Organizations are concerned, the company is making good progress to deliver $65 billion or more in care annually by 2018 through value-based care contracts. Presently, these programs touch as many of 13 million of the company’s consumers in part through more than 650 accountable care arrangements.
The company reiterated its 2015 earnings guidance of in the range of $6.25 to $6.35 per share, which absorbs $0.10 per share for Catamaran. The company also expects a further lift in the rate of earnings per share growth in 2016.
Year to date, UnitedHealth’s cash flows of $6.2 billion have grown by 11% and represent a strong 135% of income for the nine-month period. A strong cash flow generation indicates the company’s financial flexibility to pursue potential acquisitions.
UnitedHealth,however, faces the risk of losing its first rank if the merger of Anthem Inc. ANTM with Cigna Corp. CI closes since the combined company will climb to rank one in the industry, replacing the position long held by UnitedHealth.
Nevertheless, ACA fees and taxes remain a big issue in 2015. UnitedHealth expects its share of managed care industry's non-deductible ACA insurer tax to reach $1.8 billion in 2015. This will be in addition to an estimated $320 million of reinsurer fee in 2015.
A leading company in this space is Aetna Inc. AET.
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