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UnitedHealth (UNH) Counting on Optum for Long-Term Growth

Zacks

UnitedHealth Group Inc. UNH is now banking on its health services business Optum for growth. This decision follows stringent regulatory restrictions imposed by the health care reform in 2010 that hit its health benefits business which provides health insurance products.

Optum is a health services business serving the broad health care marketplace and a major part of the company’s diversification strategy. It incepted from the joining of the company’s health services business into one segment in 2011 and comprises OptumHealth, OptumInsight and OptumRx.
UnitedHealth’s fast growing health services business will fuel long-term growth and be a key differentiator.

Since 2011, Optum has compounded revenues at 23% per year and operating earnings at 34% every year. In 2015, Optum grew its revenues by 42% (including the acquisition of Catamaran in July) and its contract backlog by more than 20%. We expect OptumHealth, OptumInsight and OptumRx to continue producing strong, sustainable growth across the board in 2016 and beyond, as a leader in the U.S. and international health services markets estimated at $1.0 trillion in the aggregate.

The company has grown this segment through a number of acquisitions. Some of the significant takeovers include that of Audax Health Solutions, Inc. in 2014 as well as Irvine-based Monarch HealthCare and care and care management services provider Inspiris in 2011.

In 2015, Optum joined forces with MedExpress, a leader in high quality, affordable walk-in care, to expand access to lower-cost services in communities nationwide. It also acquired AxelaCare Health Solutions, a leading provider of home infusion solutions.

One of the biggest acquisitions made by the company under this segment was that of Catamaan Corp., for $12.8 billion, last year. It bolstered Optum’s pharmacy business.

Management is considering the expansion of the health service business to generate 30–40% of operating income over the longer term and has been making acquisitions in the area. Moreover, management feels that the company is under-penetrated in the health service area and that investments in this field will reap benefits over the long term.

UnitedHealth carries a Zacks Rank #2 (Buy). Other stocks worth considering include The Joint Corp. JYNT, WellCare Health Plans, Inc. WCG and Nobilis Health Corp. HLTH. Each of these stocks carries the same Zacks Rank as UnitedHealth. You can see the complete list of today’s Zacks #1 Rank stocks here.


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