• Lallic Partners

The Future of United Health Group

Eugene Guo | Updated May 9th, 2020 | Editor: Eden Chan


Based on the following analysis, we predict that UnitedHealth Group stock will increase in value. Through analysis of UNH’s competition, affiliate performance, and future growth, UNH stock prices are bound to soar in the near future.

Market Dominance and Competition

When investing in an industry, it’s important for investors to identify a “leading company” – one that has a consistent, strong track record in sales and growth. With that said, UnitedHealthcare has endeavored to be the industry leader of the ever-expanding US health care industry. Compared to its closest competitors, Kaiser Foundation and Anthem Inc., UNH has held a 14.2% industry market share (whereas Kaiser and Anthem only have market shares of 8.5% and 6.1%, respectively). Clearly, this data positions UnitedHealth as the largest insurance provider in the country, not to mention its consistent yearly growth. UNH’s dominance of the market and its yearly increase in earnings and revenue has resulted in a somewhat huge competitive advantage - a fact that undoubtedly gives UNH the edge in the US health care industry.

Risk Factors

- UnitedHealth’s decision to waive insurers out of pocket cost has been implemented. Of course, this is the right action for an insurance company, but it will undoubtedly affect the company’s financial performance.

- Though not always successful, there have been past incidents of an attempted merger amongst insurance companies such as Anthem, Humana and CVS (note CVS’s past acquisition of Aetna). This demonstrates competitors’ desire to rival UNH in terms of company size.

- A bigger and more uncontrollable risk factor for insurance companies such as UnitedHealth is the risk of changing policies. For example, the Trump administration’s termination of drug rebates has – in the past – caused UnitedHealth stock to struggle (albeit temporarily).

Affiliate Performance

The top growing sector under UnitedHealthcare’s umbrella is Optum. Optum is a company which uses information and technology to analyze health data. And, because this industry is rapidly growing, there is absolutely no doubt that UNH will benefit, both in profit, and in growth. Based on pass financial performances, this is an area of UnitedHealthcare’s business we expect to rapidly expand in the near future.


The chart above is part of Optum’s 2020 Q1 earnings report, showing the company’s rapid growth. Its revenue, earnings and operating margins have shown significant growth in the past three quarters, and – as such – we can expect future growth to continue.

UnitedHealth Group branches include Blue Cross and Blue Shield. It is also affiliated with companies such as Spectra and Midwest Security Life Insurance. These companies all seem to be complimenting each other quite nicely in the Healthcare industry and are doing fairly well themselves.

Future

In the short term, United Healthcare is predicted to grow despite the effects of the current economy. According to its 2020 Q1 reports, UNH had revenues, earnings and net margins growths of 0.7 billion, 0.1 billion and 0.1%, respectively (since 2019 Q4). So what does this mean? It means that this pandemic induced recession is unlikely to affect the company’s short-term growth, thus ensuring a stable foreseeable future for UNH.

In the long term, UNH is likely to continue its market dominance in the US, especially considering its current rate of expansion. In addition to this, one UNH affiliate, Optum, is also continually expanding, and will thus also see increased revenues. The stock itself has also proven to be incredibly safe for long term investments with its past history of slow and steady growth and a small but dependable dividend of 1.5%.

Summary

Overall, UnitedHealth’s history of slow and stable long-term growth, dividend payout and increasing earnings positions it as a viable option for a long-term, viable investment opportunity, especially during this time of global recession.

Image Citations

https://www.thestreet.com/investing/earnings/unitedhealth-beats-q3-earnings-boosts-2019-profit-forecast-as-optum-sales-shine-15125708

https://www.washingtonpost.com/business/2020/03/16/unitedhealth-group-tells-employees-go-work-unless-they-are-high-risk-group-have-symptoms-or-meet-other-exceptions/


Works Cited

https://www.insurancebusinessmag.com/us/news/healthcare/top-10-health-insurance-companies-in-the-us-212292.aspx

https://www.fool.com/investing/2020/03/18/why-unitedhealth-group-incorporated-stock-is-crate.aspx

https://www.optum.com/about/news/2019-executive-survey.html

https://finance.yahoo.com/news/unitedhealth-stock-buy-keep-eye-141910625.html

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