On Sep 28, we issued an updated research report on UnitedHealth Group, Inc. UNH.
UnitedHealth is one of the biggest players in the health insurance industry. The company is well positioned given its diversification, strong track record, elite management team and exposure to certain higher growth businesses.
Though the insurance industry is seeing a merger frenzy, with the proposed acquisitions of Aetna Inc. AET– Humana Inc. HUM and Anthem, Inc. ANTM-Cigna Corp. CI , UnitedHealth is not considering any such plans. In fact, the insurer is more likely to buy assets that fill gaps or widen its margin as well as help it to expand internationally.
The company acquired pharmacy benefits manager Catamaran Corporation in July. The transaction, however, is not expected to add to the company’s 2015 earnings per share (EPS) as its impact on earnings will be fully offset by interest, amortization and integration costs. The acquisition should be $0.30 accretive to the company's 2016 EPS.
Medicaid expansion, privatization and Dual Eligibles remain growth drivers for the company.
The company is also consistently building its accountable care organization (ACO) footprint. UnitedHealth runs $38 billion of its medical expenses through ACO’s and expects these to increase to $43 billion in 2015 and hit $65 billion by 2018.
UnitedHealth is expected to generate long-term earnings growth in the high teens, primarily on top-line growth in all three segments – Optum Health, Optum Rx and Optum Insight. The company’s health service segment remains a strong revenue and earnings growth driver and is expected to provide immense diversification benefits.
Nevertheless, the Affordable Care Act fees and taxes remain a big issue in 2015. UnitedHealth expects its share of the managed care industry's non-deductible ACA insurer tax to reach $1.8 billion in 2015. This is in addition to an estimated $320 million of reinsurer fee for the year.
UnitedHealth carries a Zacks Rank #2 (Buy).
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