Healthy Growth Ahead for UnitedHealth

09/18/2019 5:00 am EST


Ingrid Hendershot

Founder and President, Hendershot Investments, Inc.

UnitedHealth Group (UNH) traces its roots to Dr. Paul Ellwood, the health-policy guru who coined the term “health maintenance organization” during the 1960s, notes value-focused money manager Ingrid Hendershot, editor of Hendershot Investments.

By combining best practices in medical care with the best thinking in business management, the company’s founders sought to improve the health of patients by expanding health coverage options and strengthening the health care system.

Since its founding, the firm has consistently differentiated itself from its peers through the effective use of technology to improve care. Today, UnitedHealthcare, the firm’s health care insurance arm, provides insurance to 50 million people.

Optum, which generated 19% of the firm's total 2018 sales and 47% of its operating income, provides technology enabled health services for patients, providers, pharmacies, hospitals, payers and life sciences organizations.

Integration of UnitedHealth Group’s health insurance business with Optum provides the company with a significant competitive advantage, namely lower costs. Given its low cost producer advantage and its long history of remaining on the leading edge of healthcare industry changes, UNH is well positioned to navigate through future healthcare reform.

During the past five years, UNH has grown revenues at a healthy 15% annual rate with net income and EPS compounding even higher at 21% annual rates, respectively. UnitedHealth Group’s return on shareholders’ equity averaged 18.4% during the last decade, including 22.1% in 2018. This demonstrates the company’s well-established capital allocation strategy.

UnitedHealth Group has increased its dividend at or above a 20% clip during the past decade with the dividend compounding at a 25% annual rate during the past five years. For fiscal 2019, the company increased its dividend by 20% to an annual rate of $4.32.

Investors seeking healthy long-term returns should consider buying UnitedHealth Group, a high-quality market leader with profitable growth, growing dividends and a favorable outlook. Buy.

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