UnitedHealth Group Incorporated ( UNH Quick Quote UNH - Free Report) is well-poised to grow on the back of robust Optum and UnitedHealthcare performances. Its diversified business and rising memberships bode well.
UnitedHealth — with a market cap of $495.2 billion — provides a wide range of healthcare products and services. Based in Minnetonka, MN, UNH has the largest and most diverse membership base within the managed-care organization market, which gives it significant competitive advantages.
Courtesy of solid prospects, this currently Zacks Rank #2 (Buy) stock is worth adding to your portfolio at the moment.
The Zacks Consensus Estimate for UnitedHealth’s 2022 earnings is pegged at $22.01 per share, indicating a 15.7% year-over-year increase. In the past 30 days, UNH has witnessed two upward estimate revisions against none in the opposite direction. The company beat on earnings in each of the last four quarters, the average being 4.6%.
The consensus estimate for 2022 revenues stands at $322.9 billion, suggesting a 12.3% rise from the prior-year reported figure.
Both UnitedHealth segments, Optum and UnitedHealthcare, have been delivering robust performances over the past few years. This is expected to continue in the days ahead. Optum, UnitedHealth’s health service business, is expected to grow in pharmacy care services, care delivery, technology, government services and international.
Our estimate suggests total Optum revenues to rise 15.7% year over year in 2022, thanks to an 8.2% increase in Optum Rx, an 11.8% jump in Optum Insight and a 29.3% growth in Optum Health. Also, our estimate for total UnitedHealthcare revenues indicates 11.3% growth in 2022.
We expect UNH’s expansionary measures for the Optum segment and international business to provide significant diversification benefits and shield it from stringent regulations in the domestic market. New deals, renewed agreements and expansion of service offerings will likely be major tailwinds.
Moreover, using advanced technology, market-leading health analytics, modern care delivery and data-driven population health approaches are likely to lend Optum a long runway for growth. The improvement of the domestic economy is likely to support UNH’s commercial business recovery. This will boost the number of people served with domestic commercial benefit insurance offerings.
Rising memberships are likely to help its premium collection and service fees. Our estimate suggests 2022 premiums to rise 12.9% while service revenues are expected to jump 10.7%. Also, improving efficiency will play a major role in improving margins. Our estimate for the UnitedHealthcare medical care ratio of 82% indicates a significant improvement from 2021 actuals.
UNH’s balance sheet strength will allow it to continue taking expansionary steps. It exited the third quarter with cash and short-term investments of around $42.5 billion, way above the short-term borrowings and current portion of long-term debt of $3.2 billion. During the first nine months of 2022, UnitedHealth generated operating cash flows of $30.7 billion, which increased from the prior-year comparable period’s $19.1 billion.
However, there are a few factors that might impede the stock’s growth.
Increasing costs might eat into its profits. We expect its total operating costs and expenses to increase 11.5% in 2022, on the back of higher medical costs and costs of products sold. Also, membership from international business is declining, which might strain the membership growth prospects of UnitedHealth. Nevertheless, we believe that a systematic and strategic plan of action will drive its long-term growth.
Other Key Picks
Some other top-ranked stocks in the broader
medical space are Elevance Health Inc. ( ELV Quick Quote ELV - Free Report) , AMN Healthcare Services, Inc. ( AMN Quick Quote AMN - Free Report) and Inventiva S.A. ( IVA Quick Quote IVA - Free Report) , each carrying a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here .
The Zacks Consensus Estimate for Elevance Health’s full-year earnings is currently pegged at $29.01 per share, indicating a year-over-year increase of 11.7%. ELV beat earnings estimates in all the past four quarters, with an average surprise of 4.1%.
The Zacks Consensus Estimate for AMN Healthcare’s current year bottom line indicates a 42.3% improvement from the prior-year reported number. The consensus estimate for AMN’s top line also indicates 29.7% year-over-year growth.
The Zacks Consensus Estimate for Inventiva’s 2022 bottom line indicates an 11.3% year-over-year improvement. IVA has witnessed two upward estimate revisions in the past 60 days against none in the opposite direction.