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UnitedHealth Gains on Strong 2019 Outlook, Acquisition News

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Shares of the leading health insurer UnitedHealth Group Inc. (UNH - Free Report) rose close to 2% after the company reaffirmed its 2018 earnings guidance and gave earnings insights for 2019.

For 2019, UnitedHealth provided initial adjusted earnings per share (EPS) outlook of $14.40­$14.70 (or $13.70­$14.00 on a GAAP basis, including intangible amortization). The company also provided initial guidance $243­$245 billion for revenues and $17.3­$17.8 billion for cash flow from operations.

Moreover, UnitedHealth reiterated its expectations for 2018 adjusted EPS to “approach $12.80.”

Management also expressed confidence in its long­term earnings growth outlook, reiterating its growth target of 13­16%. Two-thirds of this growth will be driven by earnings from operations and one-third from the application of capital.

The company expects membership growth in nearly all its business lines expect Part D Stand-Alone. Medicare Advantage is expected to see maximum growth in enrollment, as more baby boomers are reaching retirement age, pushing up demand for this service.

The most attractive growth point for UnitedHealth is its rapidly growing Optum business. Its market includes care delivery, population health management and engagement, health financial services, health IT, benefit operations, care operations and pharmacy care services and is mostly outside the purview of the regulations that bind the another major segment UnitedHealthcare.

The Optum segment thus provides diversification benefits and eases regulatory pressure on the company. Revenues from this business are expected in the range of $111-$112 billion for 2019, which translates into year-over-year growth of nearly 22%.

With a solid capital structure (debt-to-capital ratio of nearly 40% and regular positive cash flows) coupled with strong business fundamentals the stock is poised for long-term growth.

Its return on equity, a ratio which measures profitability, has been increasing over the past several years and is around 24% currently. We expect the company’s leadership position, inorganic and organic growth, and efficient capital management to continue generating strong returns for its shareholders.

The company also announced that its unit, Optum, will be acquiring a stake in The Polyclinic, a century-old physician-owned multi-specialty practice. The buyout will expand its business of providing direct care to patients. This buyout is in line with the company’s efforts to grow its Optum segment.

The stock has gained 25% in a year’s time compared with the industry’s growth of 23%.

UnitedHealth carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space are Aetna Inc. , Humana Inc. (HUM - Free Report) and Anthem Inc. (ANTM - Free Report) . Each of these stocks carries a Zacks Rank #2 (Buy) and has surpassed earnings estimates in each of the trailing four quarters by 7.33%, 4.73% and 5.11%, respectively. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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