UnitedHealth (UNH) Closes DaVita Unit Buy, Expands OptumCare

UnitedHealth Group Inc.’s (NYSE:UNH) Optum unit has completed the buyout of DaVita Medical Group, a unit of DaVita Inc. (NYSE:DVA) , for $4.3 billion in cash.
This acquisition has been made by OptumCare — a sub-segment of Optum — the company’s health services segment. OptumCare provides primary and urgent care delivery services business. It will expand UnitedHealth’s ambulatory care services operations.

With this deal, UnitedHealth will now be able to pair DaVita Medical Group’s 300 medical clinics, 35 urgent-care centers, and six outpatient surgery centers — which reach around 1.7 million patients a year — with Optum’s massive insurance division.

This acquisition is expected to aid the growth of OptumHealth, which is targeting double-digit percentage revenue growth on average and sustainable operating margins of 8% to 10% in the upcoming years. The unit continues to make productivity gains in its existing products and services while investing in new platforms and markets.

Numerous small mergers and acquisitions have strengthened UnitedHealth's existing business; provided a new platform for future growth; and brought tools, technologies or skills that could not be otherwise obtained or developed more efficiently. These business combinations are also necessary to control UnitedHealth’s soaring medical costs and protect its margins.

Effective use of capital is one of the drivers of UnitedHealth’s ability to achieve distinctive long-term financial performance, as reflected by revenue CAGR of 12% from 2006-2018.

Year to date, the stock has lost 0.6% compared with the industry’s rise of 2.12%.

The inorganic growth strategy of the company has placed it at the highest echelon in the industry (in terms of medical members served and revenue), against companies like Cigna Corp. (NYSE:CI) , Anthem Inc. (NYSE:ANTM) , Humana (NYSE:HUM) and others.

Meanwhile, an increasing trend of consolidation is being witnessed across the industry, which is itself undergoing rapid transformation owing to heightened regulation, soaring medical costs, increased consumerism, and shift to value-based care. Some of the recently completed buyouts are that of Aetna Inc (NYSE:AET). by CVS Health Corp (NYSE:CVS)., and Express Scripts (NASDAQ:ESRX) by Cigna Corp. These deals have enabled the surviving entities to develop an ecosystem of healthcare services and derive efficiencies at each node.

UnitedHealth carries a Zacks Rank #3 (Hold).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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