UnitedHealth Group Inc. (UNH - Free Report) the health insurer major has carved a niche for itself in the health care industry by building up pieces of businesses that has given it enormous diversification benefits, both across product and geography.
UnitedHealth’s business diversification has been achieved by fortifying its health service business, Optum, which over the years has grown to claim a greater share of the company’s total revenues. One of the main reasons for the company to nurture this business was that it remained largely insulated from the regulation which is applicable to another segment UnitedHealthcare, still the major contributor to total revenues.
UnitedHealth has complemented its organic growth with targeted acquisitions that have helped it to achieve more in much lesser time. Its Optum business which provides services via three business segments — OptumHealth, OptumInsight and OptumRx — provide service capabilities in data and analytics, pharmacy care services, population health management, health care delivery and health care operations. Together, these capabilities represent a $1.4 trillion market opportunity, which implies huge growth for years to come.
Coming to the other segment, UnitedHealthcare, has grown organically by more than 12 million people domestically since 2010, achieved via balanced, vibrant growth, serving increasingly diverse markets. The growth profile should continue given the company’s strong standing in the government business, which presents immense potential.
UnitedHealth is also one such company that has been able to lower medical cost for its customers via Accountable Care Organizations (ACOs). These ACOs are groups of providers that are paid on the quality of service provided and not on the quantity of service provided as prevailed earlier.
The company currently delivers more than $60 billion in care annually through contracts, with value-based features and is on course to raise that number to $75 billion by 2020.
We expect the company’s impressive growth to continue as it remains an active acquirer of other businesses to strengthen an existing business or platform or provide a new platform for future growth or avail tools, technologies or skills that cannot be otherwise obtained or developed more efficiently.
Moreover, in 2018 and beyond, we see the potential for sustained growth across markets served by the company, particularly in expanding government programs.
Also, UnitedHealth remains the frontrunner in applying digital tools and data for health decision-making for its consumers. It is also using blockchain technology in its operations, which should enhance its overall business efficiency.
Year to date, the stock has gained 14% compared with the industry’s growth of 12%. Its performance looks better than the growth of 4% and 5% for Anthem Inc. (ANTM - Free Report) and Aetna Inc. (AET - Free Report) , respectively, over the same time frame.
UnitedHealth carries a Zacks Rank #2 (Buy). Another stock worth considering in the same space is Humana Inc. (HUM - Free Report) , which shares the Zacks Rank with UnitedHealth. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Humana surpassed estimates in each of the trailing four reported quarters, with an average positive surprise of 3.64%.
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