UnitedHealth Group Benefits from Demographics

Thursday, 05 Jan 2012 07:11 AM

By Tim Plaehn

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As the largest health care company by market value, UnitedHealth Group (UNH) is well positioned to benefit from projected long-term health spending trends. The company has grown membership and market share as the overall amount of healthcare spending continues to rise, thanks to demographics. As Americans age, they will spend more on health needs.

The UnitedHealth Group divides its operations into two businesses: UnitedHealthcare offers managed care health insurance plans for businesses, individuals, government entities and Medicare recipients.

The Optum division provides health services such as medical clinics, medical practice management, mental and substance abuse programs, health program consulting and analytics and a prescription drug network.

The UnitedHealthcare division accounts for three-quarters of total company revenues and 85 percent of earnings from operations.

For the first three quarters of 2011 UnitedHealth Group generated total revenues of $75.9 billion, up from $70.1 billion in the first nine months of 2010. Income for the period was $3.56 per share, up 13 percent from $3.15.

For the full year 2011 the consensus earnings estimate is $4.57 per share, compared to $4.15 earned in 2010. The Wall Street consensus for 2012 earnings is $4.77 per share. Over the last four quarterly earnings reports, UnitedHealth exceed the consensus estimate by an average of 20 percent.

Growth prospects

Healthcare spending in the United States is forecast to grow at 4.6 percent per year through 2020. The projected growth rate stays essentially the same whether or not the federal government becomes the primary force in health coverage.

In the 12-month period ending in the 2011 third quarter, the company added 1.7 million participants to its various healthcare programs, adding another level of growth.

The company has been aggressively buying back stock, too, spending $2.1 billion in the first three quarters of the year. In mid 2010, UnitedHealth boosted the quarterly dividend to 12.5 cents per share from 3 cents. In the second quarter of 2011, the dividend was again increased, to 16.25 cents per share.

Recent analyst communications concerning UnitedHealth Group include a reiteration of their buy rating by Deutsche Bank analysts. Barclays Group analysts reiterated their over-weight rating.

The company next reports on Jan. 19.

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