UnitedHealth: Benefitting from Diversified Portfolio - Analyst Blog

On Dec 18, we issued an updated research report on U.S. health insurer UnitedHealth Group Inc. (UNH).

 

UnitedHealth is one of the biggest and most-diversified health insurers in the U.S. It holds a huge share in the Medicare market, which is expected to see a boom in the coming years as millions of Americans enter retirement. 

 

UnitedHealth aims to aggressively expand its participation in exchanges in 2015, boosting the number of its markets to about two dozen from six in 2014. The company expects its exchange business to produce margins of 3% to 5% long term. 

 

UnitedHealth is also expanding its accountable care contracts like other players Aetna Inc. (AET), Humana Inc. (HUM) and Cigna Corp. (CI). These contracts help in the effective delivery of care at a reasonable cost. The company has set an aggressive target of garnering more than $65 billion in value-based contracts with care providers by 2018. 

 

The health service business – Optum – is an essential part of UnitedHealth's diversification strategy. It gives UnitedHealth a competitive advantage through its medical management services and analytics capabilities.

 

UnitedHealth is also expanding its business internationally. Geographical diversification features prominently in the company's plan of action to overcome restrictions imposed by the Health Care Reform in the U.S. 

 

On the tepid side, UnitedHealth is also witnessing increased operating costs due to high medical and operating cost pressure related to the Affordable Care Act.

 

The company boasts a strong balance sheet with a moderate leverage ratio and strong cash flow. It also engages in a shareholder friendly strategy of capital management via share buyback and dividend payment.

 

UnitedHealth carries a Zacks Rank #2 (Buy).