UnitedHealth Group Inc (NYSE: UNH) is the biggest integrated player in the healthcare sector. Through its UnitedHealthcare division, it supplies individuals as well as public and private entities with healthcare plans. Through its Optum divisions, it helps make operations more efficient and create better outcomes for patients. It also has a pharmacy benefit management (PBM) arm that’s included in one of these divisions.
That means, even with the merger of health insurer Aetna Inc (NYSE:AET) with PBM CVS Health Corp (NYSE:CVS), UNH is still almost twice the size of the combined company, by market cap.
What’s the Deal With UNH?
Essentially, the integrated approach that UNH has built and successfully deployed is the motivation of CVS acquiring AET. Vertically integrating healthcare services and unifying all those services with the help of twenty-first century technology is where healthcare is moving.
By finding ways to make the system more efficient, UNH stock has been able to increase its margins quarter after quarter. And that trend should remain in place for its upcoming Q4 earnings release next week.
In the past 12 months, UNH stock has not performed as well as its smaller rivals in the healthcare insurance sector, AET and Anthem Inc (NYSE:ANTM), but it has still posted a very respectable 38% return over that time.
Also bear in mind that UNH is much bigger and more diversified than these two competitors, so it’s not an apples-to-apples comparison. The advantage of UNH is it is already a fully formed integrated healthcare company.
And, looking at its Q3 earnings release, its Optum divisions are solid growth engines for UNH, which is likely helping to grow the overall company’s margins.
Bottom Line on UNH Stock
In Q3, UNH’s revenue was up 8.7% year-over-year. But for OptumHealth, revenue was up 21.2%. OptumInsight was up 9.8%. This is where the real growth is in the healthcare system, with data analytics and building a more efficient system throughout the entire healthcare experience.
While the merged CVS and AET may find some economies of scale, UNH stock is already there.
And given the challenges PBMs had in 2017 with the back and forth over what to do about the Affordable Care Act and how best to replace coverage for Americans, CVS was hungry to stabilize its business and build in a large, dependable customer — AET — to keep its growth on track.
The fact is, 10,000 Americans are turning 65 every month now. And that trend is going to continue for decades. That means size is the only way to make sure you have a seat at the table with the DC politicians when it comes to healthcare legislation.
And on the consumer side, outcome-based healthcare will also become increasingly important since the margins are higher on maintaining health than they are when life-saving procedures are needed. UNH is ahead of the curve and is likely to keep that lead.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
