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Optum Leads UnitedHealth Toward Growth

Dan Caplinger, The Motley Fool

The healthcare industry has gone through a lot in recent years, as efforts at reform have forced major players in the health insurance field to stay on their toes and adapt to changing conditions. UnitedHealth Group (NYSE: UNH) has navigated those turbulent waters well, and despite ongoing efforts to make changes to the way that federal and state government provide health insurance to those who don't have access to it at work, UnitedHealth has been able to find pathways toward faster growth.

Coming into Thursday's second-quarter financial report, UnitedHealth investors hoped that the company would be able to keep up its momentum and deliver solid results for the period. UnitedHealth's report showed that the company remains on track, and its Optum unit was particularly successful in helping to boost revenue and profit for the overall business.

How UnitedHealth kept growing

UnitedHealth's second-quarter results featured good performance across the board. Revenue rose 8% to $60.6 billion, essentially matching what most of those following the stock had expected to see from the healthcare giant. Net income climbed almost 13% to $3.29 billion, and after accounting for some extraordinary items, adjusted earnings of $3.60 per share came in well ahead of the consensus forecast among investors for $3.45 per share.

OptumCare logo of stylized 3-d square in yellow, orange, and gray.

Image source: UnitedHealth Group.

From a segment perspective, UnitedHealth got good contributions from both sides of its business. In the UnitedHealthcare division, revenue climbed 6%, leading to a 12% rise in operating earnings for the unit. Sales growth was strongest in the Medicare and retirement area, which featured double-digit percentage gains due largely to increased interest in Medicare Advantage products. More modest increases in the community and state and employer & individual areas also added to revenue gains, although membership trends were mixed across those two areas as UnitedHealth made choices that led to reduced membership counts among state government customers. The insurer's global business saw flat revenue year over year. Overall, the company served more than 700,000 additional members during the period that it did 12 months ago.

Meanwhile, the Optum health services business saw even stronger growth, with overall segment revenue gains exceeding 13% and giving investors a 14% rise in operating profit. The OptumHealth wellness and health management division saw the largest gains of 20% on the top line, as UnitedHealth worked hard to get more revenue on a per-customer basis from its existing client list. The OptumRx prescription benefit manager featured sales gains of nearly 12%, while the OptumInsight data analytics division enjoyed a 7% rise in revenue and a 20% backlog boost.

What's next for UnitedHealth?

CEO David Wichmann was succinct in his comments about the company. "Our results in the quarter," Wichmann said, "reflect strong and balanced performance from both Optum and UnitedHealthcare." The CEO once again attributed most of the gains to UnitedHealth's workforce, which now number 320,000.

In response to the strong start to the year, UnitedHealth increased its guidance for 2019. The company now sees full-year earnings coming in between $14.70 and $14.90 per share on an adjusted basis, up between $0.20 and $0.30 per share from its previous outlook.

The big question ahead is whether healthcare reform will have a major impact on UnitedHealth's business. The company got a nice boost earlier this month when the Trump administration decided to pull back on its proposal to change the way that prescription drug manufacturers offer rebates to pharmacy benefit managers. With that stream of revenue now no longer facing an imminent reform threat, UnitedHealth should be able to use its strong position in the industry to keep generating additional profit.

UnitedHealth investors seemed pleased with the report, and the stock was higher by about 1% in pre-market trading following the announcement. Even though the healthcare industry is changing constantly, UnitedHealth has demonstrated its ability to roll with the punches, and shareholders are confident that the health insurance giant will keep delivering long-term growth in its fundamental business.

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Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool recommends UnitedHealth Group. The Motley Fool has a disclosure policy.