【2024.10】The insurance industry's aircraft carrier, with stock prices rising for more than a decade! How do you see the performance of UnitedHealth?

In the US stock market, there are many long-term bull stocks, but only a few have risen continuously for over a decade. UnitedHealth, a giant in the US health insurance and medical services industry, is one of the stocks that has historically experienced long-term growth. From 2009 to 2022, $UnitedHealth (UNH.US)$ it had risen for 14 consecutive years. After a slight drop of less than 1% in 2023, it reached a new high this year, accumulating over 20 times growth since 2009.

UnitedHealth's outstanding performance in the capital markets is inseparable from its long-term business trends. On October 15th, UnitedHealth will release its latest earnings reports. Every time the company announces its earnings, it may also indicate a good trading or investment opportunity. Before that, investors need to understand how to interpret its performance.

So how should we interpret UnitedHealth's performance? We should focus on its fundamentals, growth drivers, and profitability.

1. Base

UnitedHealth has two main business sectors: health insurance business and Optum business providing medical products and services. These two businesses complement each other. The health insurance business can bring customers to the Optum business, while the Optum business can provide data insights to the health insurance business and reduce claims costs through economies of scale in pharmaceutical and service procurement.

In terms of business importance, the health insurance business can be considered as the cornerstone of UnitedHealth. In terms of revenue share, the health insurance business currently maintains around 55%, occupying the majority of revenue; at the same time, the health insurance business is also the main source of customers for the company, serving as the foundation for all businesses.

The revenue growth of UnitedHealth in the cornerstone of health insurance business has been very stable over the past decade. From 2010 to 2023, the revenue of the health insurance business has grown steadily each year, maintaining double-digit growth rates in the last three years. Its revenue has grown from $82.73 billion in 2009 to $281.36 billion in 2023, nearly 1.5 times growth in 14 years. In the first two quarters of this year, the revenue growth rate of the health insurance business has declined slightly but still remains above 5%.

The revenue growth of unitedhealth's insurance business sector mainly depends on the total premiums collected. Total premium income is primarily determined by two indicators: total medical membership and per capita premium.

In terms of total medical membership, unitedhealth has continuously expanded its membership through acquisitions and business expansion, with the number of members increasing from 32 million in 2009 to over 500 million in 2023, showing growth in most years and maintaining stability in recent years. However, in the first two quarters of 2024, there was a slight decline in membership.

In terms of per capita premium, unitedhealth has maintained growth for 10 consecutive years since 2015, exceeding $5500 in 2023, more than double the amount in 2015. From 2022 to 2023, due to high inflation, unitedhealth's per capita premium also rose significantly, with a year-on-year growth of over 10% for two consecutive years. In the first two fiscal quarters of this year, per capita premiums continue to grow at a double-digit rate.

In the future fiscal quarters, for unitedhealth's insurance business sector, on the one hand, we need to observe whether the total medical membership can return to a stable growth trend after a short-term decline, and on the other hand, we can observe whether the per capita premium can maintain a growth rate of over 5% after the end of the high inflation period.

2. Growth points

Among Qualcomm's existing businesses, the only product that has continuously grown is the automobile chip product.

If the insurance business sector is the basic foundation of unitedhealth, then the Optum business is its core growth driver.

From 2010 to 2023, Optum business saw growth exceeding 10% in most years, with revenue increasing from $20.4 billion in 2009 to $226.6 billion in 2023, a tenfold increase over 14 years. Its revenue share also rose from less than 20% to nearly 45%.

Specifically, Optum's revenue can be divided into 3 segments, including Optum RX, Optum Health, and Optum Insight.

The Optum RX business mainly focuses on pharmaceutical benefits management (PBM), leveraging the scale advantages brought by the company's large customer base, negotiating with pharmaceutical companies and pharmacies to obtain lower procurement prices, and thus earning the price difference.

In 2023, Optum RX business revenue reached $116.09 billion, a year-on-year increase of 16.4%, accounting for over half of Optum's revenue, and being the main driving force of revenue.

The Optum Health business mainly focuses on medical service management, collaborating with hospitals and medical service institutions to provide relevant medical services to customers, and also earning the price difference through a scale-based service procurement model.

In 2023, Optum Health business revenue reached approximately $95.32 billion, accounting for over 40% of Optum's revenue, with a year-on-year growth rate of 33.9%. Historically, for most years, the growth rate exceeded 20%, making it the fastest-growing business in the Optum sector.

Optum Insight mainly focuses on information services for the medical and insurance industries, providing support for internal business operations and generating revenue externally. Although the revenue contribution is relatively small, it significantly supports the overall business of the company.

In the upcoming quarters, we can continue to observe whether the Optum RX business can maintain steady growth, if Optum Health's high growth rate can be sustained, thereby driving the overall revenue growth of UnitedHealth.

Profitability

The long-term stable stock performance of UnitedHealth in history is largely related to the overall improvement of its profitability. From 2009 to 2023, UnitedHealth's ROE increased from 4.39% to 6.23%, and its net profit increased from $3.82 billion to $22.38 billion, nearly quintupling, far exceeding the revenue growth rate during the same period.

At the same time, the return on equity (ROE) of UnitedHealth has also maintained an increasing trend, rising from 17.2% in 2009 to 26.9% in 2023, overall stepping up to a new level.

The increase in UnitedHealth's profit margin is largely related to the higher revenue share of the more profitable Optum business. The operating profit margin of the company's health insurance business has fluctuated between 5% and 8%, staying at 5.8% in both 2023 and 2009, while the operating profit margin of its Optum business has been consistently between 7% and 9% in recent years, overall higher than the health insurance business.

In the future quarters, we can focus on whether the revenue share of the Optum business can further increase, thereby driving the overall profitability of UnitedHealth.

In addition to UnitedHealth's own profitability, we can also compare the company's profitability with its peers. UnitedHealth's profit margin of less than 10 points may not look outstanding, but it is already a standout among its peers in the industry.

For example, among the top ten health insurance companies in the United States, six are listed on the US stock market. In 2023, the profit margin level of the other 5 companies is all below 5%, far below the level of UnitedHealth.

Going forward, we can continue to observe whether UnitedHealth can maintain its leading edge in profitability through economies of scale and operational capabilities.

Seeing this, you may have some new insights on how to read UnitedHealth's performance. It is worth mentioning that every release of earnings by many star companies may represent a rare trading opportunity for different types of investors.

Please use your Futubull account to access the feature.

Conversely, if investors believe that the latest performance of a certain company will not be optimistic and will bring pressure on the short-term stock price, investors may consider short selling, which can be done by considering margin selling or buying put options.

Of course, if investors think that the bullish and bearish direction of a company's performance is unclear, but the stock price may experience significant fluctuations after the performance release, then investors may consider the straddle strategy of buying call and put options to capture potential opportunities.

Finally, to summarize,

When it comes to the performance of UnitedHealth, we can focus on its fundamentals, growth drivers, and profitability.

The foundation of UnitedHealth lies in its health insurance business, where we can observe whether the number of health insurance members can return to steady growth in the upcoming fiscal quarters, and if the per capita premium can continue to maintain a high growth rate.

The growth driver for UnitedHealth is Optum, where we can continue to observe whether the Optum RX business can sustain steady growth, as well as if Optum Health's rapid growth momentum can be maintained.

Overall, UnitedHealth's profitability continues to trend upwards. We can monitor whether the proportion of revenue from the high-profit Optum business can further increase, and if the company's overall profitability can continue to maintain a leading advantage over its peers.