UnitedHealth Maintains Profitability, Exits Public Exchange

On Jun 21, we issued an update research report on the health insurer UnitedHealth Group Inc. (NYSE:UNH) .

UnitedHealth is a leader in the health insurance industry and is incurring losses on the individual exchange business that is conducted via the public exchange. To protect its profitability, the company has exited public exchanges in more than a dozen states. This has saved the company from the loss that this business would have brought if it was continued.

Rather UnitedHealth is focusing on investing and growing its health services business branded as Optum. To this end, the company acquired Catamaran last year. The acquisition has been fruitful as evident from the revenue accretion from it. Optum is becoming an increasingly valuable business and is expected to account for about 42% of UnitedHealth Group’s consolidated operating earnings this year.

UNITEDHEALTH GP Price and Consensus

UNITEDHEALTH GP Price and Consensus | UNITEDHEALTH GP Quote

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

UnitedHealth also carries a strong balance sheet and generates handsome cash flows which allows it to increase dividend payments and make regular share buyback.

The company will nevertheless face stiff competition with the entry of new entities formed by the pending mergers of Anthem Inc. (NYSE:ANTM) with Cigna Corp. (NYSE:CI) and Aetna Inc. (NYSE:AET) with Humana Inc. (NYSE:HUM) . The combined company formed by the Anthem-Cigna merger is expected to cover 53 million lives, surpassing UnitedHealth, which covers 49 million as the nation’s largest health insurer by membership at present. The Aetna-Humana merger would enable the new entity to cover 33 million people and give stiff competition to UnitedHealth.

UnitedHealth carries a Zacks Rank #3 (Hold).