In the Q2 conference call, Stephen Hemsley made it clear that UnitedHealth Group --that 1,000-pound-gorilla of the healthcare insurance world-- is still in the pink of health. At least in management's view.
UNH's management focused heavily on the positive this quarter.
The rise was in stark contrast to the reaction just a quarter ago, when the tone was a lot more downbeat. Management concern and comments about the Obamacare overhang and pricing pressure from the new hep-C treatment ( Gilead 's Sovaldi) left some investors so underwhelmed they dumped not only UnitedHealth's stock, but temporarily fled the whole managed care sector.
This time, good news came often and early. After the company reported better-than-expected Q2 earnings, it promptly raised guidance.
I'm all in favor of letting winners run, and UnitedHealth is up 10% since the beginning of the year, not to mention being a stellar long-term performer.
What investors really need to hear from management is whether this stock will recapture its growth edge in the future. No one has a crystal ball, but conference call highlights may indicate whether the good times will keep rolling.
Optum has been a huge success for UnitedHealth. The Optum business line includes OptumHealth (which provides physician solutions and population health management support), OptumInsight (consulting and tech support services), and OptumRx (a pharmaceutical benefit manager -- or PBM) .
Optum is a huge, fast-growing opportunity for UNH, and one that bears close watch by investors.
UnitedHealth's majority purchase of Brazilian health insurance provider Amil in 2012 gave UnitedHealth a platform to move into international markets. According to the conference call, the company is continuing to build out franchises in Rio and São Paulo. Brazil is a sizable market under-penetrated by medical, dental, and clinical services companies and is a huge growth opportunity.
UnitedHealth's caution with the exchanges caused it to enter only a handful of individual health insurance exchanges this year. The company now expects to up that total to as many as twenty-four in 2015.
Enrollment in the exchanges is at 8 million and the Congressional Budget Office expects that number to cross over 20 million within three years. As the United States implements an overhaul of its entire healthcare system, UnitedHealth is in the position of having to recapture customers taken by competitors such as WellPoint,Centene, and Molina Healthcare .
How UnitedHealth plans to recover lost ground wasn't made clear in the conference call. Undercutting the competition on pricing is problematic. With a roughly 6% operating margin in the UnitedHealthcare segment, pricing will need to stay very disciplined. The firm's medical loss ratio also increased slightly to 81.6%, although management said they expected that to lessen and average 81% for the entire year.
A few final words from the conference call and Mr. Hemsley:
The answer to that question really depends on how the company's tactics play out. As mid-term elections approach and Obamacare continues to evolve, the firm's cautious "watch and learn" tactics may prove brilliant. But right now, UnitedHealth has some serious profitability, pricing, and competitive pressures to contend with .
You may love UnitedHealth Group's growth prospects, but this stock could leave it in the dust!
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The article 5 Things UnitedHealth Group Inc.'s Management Wants You to Know originally appeared on Fool.com.
Cheryl Swanson owns shares of Gilead Sciences. The Motley Fool recommends Gilead Sciences, UnitedHealth Group, and Wellpoint. The Motley Fool owns shares of Gilead Sciences. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .
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