Investment Thesis
- Well positioned to benefit from positive healthcare trends and demographics.
- Optum offers a sustainable cost edge with predictive data and analytics. Management is expecting to achieve a further 20-40bps cost efficiencies through automation and machine learning.
- Consistent top line growth with revenues growing at CAGR ~14% and operating earnings growing at CAGR ~17%. The Company has a very diversified portfolio which seemingly benefits in every market (with the insurer serving employers, individuals, Medicare, and state and local governments).
- Excessive expansion of international business giving UNH some protection from increasing regulations in the U.S. The global business is now earning revenue of ~US$10bn.
- Competent management team.
- Generating very significant cash flow (growing at a CAGR ~15%) and returning a fair amount of that cash flow back to shareholders via a growing dividend (DPS grew at a CAGR 22% over FY15-18) and share repurchase program.
Key Risks
- Slowdown in customer acquisition if health insurance tax comes back in 2021.
- Headwinds from potential regulatory reforms like Medicare for all.
- Value destructive M&A.
- Key-man risk due to management changes.
- Increased competition (pricing pressure & innovative products) from new entrants or existing players like Anthem and Humana.
- Cyber-attacks or other privacy or data security incidents resulting in security breaches.
- Legal proceedings leading to substantial penalties or damage to reputation.
Key Highlights
- Group revenues of $317-320bn.
- Operating profit margin of 8.5% at the midpoint.
- EPS of $20.45-20.95 per share vs prior forecast of $20.2-20.7 per share and adjusted EPS of $21.4-21.9 per share (vs prior guidance of $21.1-21.6 per share), translating to growth of +13.8% y/y at the midpoint, +80bps higher than the lower end of management’s long-term target of 13-16%.
- Cash flows from operations of ~24bn.
- Medicare Advantage customer growth of 800,000 with ~3/4 in individual and group Medicare Advantage and the remainder in Dual Special Needs Plans.
Company Description
UnitedHealth Group (NYSE: UNH) is a diversified health care company offering a broad spectrum of products and services through two distinct platforms: UnitedHealthcare, which provides health care coverage and benefits services and includes UnitedHealthcare Employer & Individual, UnitedHealthcare Medicare & Retirement, UnitedHealthcare Community & State, and UnitedHealthcare Global businesses; and Optum, which provides information and technology-enabled health services through its OptumHealth, OptumInsight and OptumRx businesses.
(Source: Banyantree)
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