We believe UnitedHealth Group Inc.’s (UNH - Free Report) health services business Optum will be an important ingredient of its first-quarter earnings growth. Optum serves the global healthcare marketplace, including payers, care providers, employers, governments, life sciences companies and consumers.
The company is investing in this segment with an aim to diversify earnings and seek protection from the highly regulated health services business. Other companies in the industry, Humana Inc. (HUM - Free Report) , Anthem Inc. (ANTM - Free Report) and Aetna Inc. (AET - Free Report) are also diversifying into the health services business to become a comprehensive healthcare entity.
Optum has been a jewel for UnitedHealth. Its revenue CAGR of 24% from 2014 to 2017 is highly impressive. The Zacks Consensus Estimate for revenues from the segment is $23.6 billion, up 11.3% year over year.
Revenue growth from this segment should be driven by increased contribution from each of its sub-segments, OptumHealth, OptumInsight, Optum Rx.
Revenues from OptumHealth should be aided by organic growth acquisition-related growth in care delivery. The segment has been indulging in market expansion in care delivery, as well as growth in consumer health engagement products and services, behavioral health services and health financial services. Increase in the number of consumers served and a rise in average revenue per consumer will contribute to the segment’s top line. The Zacks Consensus Estimate of $5.69 billion for revenues from this segment represents 20.2% growth year over year.
OptumInsight’s revenues will see accretion from growth in revenue management services, business process services and data analytics. The segment has been witnessing an increase in revenue backlog, which reflects strong demand for its solutions and the trend is expected to continue in the first quarter. The Zacks Consensus Estimate pegs revenues at $2.17 billion, up 17.5% year over year.
OptumRx, the company’s pharmacy management arm has achieved sufficient scale in the PBM business from the acquisition of pharmacy benefit manager, Catamaran, in 2015. Recently, OptumRx was selected by 10 companies for healthcare transformation, driven by their interest in quality, cost transparency and total cost management. For the first quarter, we expect revenue growth from a surge in adjusted scripts. The Zacks Consensus Estimate for revenues from OptumRx is $15.85 billion, up 6% year over year.
UnitedHealth’s solid market share, strong performance at UnitedHealthcare segment, membership enrollment growth and disciplined capital management are also anticipated to aid overall earnings.
At present, UnitedHealth carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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