🩺 Can UnitedHealth Convince The Regulators?

Netflix shares crater afterhours.


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🩺 UnitedHealth: Seeking Regulatory Blessings?

The world’s largest healthcare insurance provider UnitedHealth Group Inc. (UNH), raised its full-year EPS outlook after Q1 results beat estimates. It also announced an acquisition to boost its home healthcare portfolio. Over to the regulators who are already quizzing United on a prior acquisition. (Tweet This)

Trusting Antitrust!

UnitedHealth is the world’s eighth-largest company by revenue, with a market cap of $500+B. As of October last year, the company partnered with over 1.3M physicians and care professionals and over 6.5K hospitals across the US.

Optum is UnitedHealth’s tech-focused subsidiary created in 2011 by merging its pharmacy and care delivery services into one brand. Over the last decade, Optum has spread operations to 150 countries across North and South America, Europe, Asia-Pacific, and the Middle East.

Optum comprises three major business divisions: Optum RX – the largest pharmacy benefit manager in the US, providing pharmacy care services to 65M people through the network of ~70K community pharmacies; the other two units are Optum Insights and Optum Care.

Optum now contributes to half of UnitedHealth’s revenue. UnitedHealth has been acquiring several businesses to bolster Optum. Audax Health in 2014; Surgical Care Affiliates in 2017, and Equian LLC in 2019. However, its biggest acquisition for Optum has now become its biggest bone of contention.

Last January, UnitedHealth acquired Change Healthcare for $12.8B to strengthen Optum’s healthcare technology services portfolio. Change is a major provider of healthcare clinical and financial services, along with the handling of claims. Unfortunately, the deal did not go down well with the regulators.

Two months back, the US Department of Justice filed an antitrust lawsuit saying the deal would reduce competition in the commercial insurance and claims processing market. The DoJ was also concerned that UnitedHealth could use customer data to the detriment of competition.

The states of Minnesota and New York joined the lawsuit as plaintiffs. UnitedHealth decried DoJ’s hypothesis for the lawsuit and said the deal would increase efficiency and reduce friction in healthcare, produce a better experience, lower costs, and smoothen the healthcare payments process.

The deal that was supposed to consummate at the end of last year has been pushed out to December 31, 2022. Optum is on the hook to pay a $650M break-up fee to Change if the merger doesn’t materialize.

Growth Through Acquisitions

Be that is may, UnitedHealth reported double-digit growth in Q1, led by both its core business and Optum.

Key Highlights From Q1:

  • Revenue: $80.15B Vs $78.73B expected
  • Earnings Per Share: $5.49 Vs $5.36 expected

Optum’s revenue grew at 19% Y-o-Y to $43.3B. Optum health now expects to serve 600K new patients under value-based care arrangements, higher than their previous guidance of 500K. Such agreements involve paying doctors a set amount instead of fees for each service.

The company’s insurance business grew 13.6% from last year to $62.6B while adding 350K new members in Q1, with growth seen in programs linked to government benefits. This year, the company is confident of enrolling 800K new customers in its Medicare Advantage products.

UnitedHealth is continuing to pursue M&A as a growth strategy aggressively. Last month, it announced the acquisition of LHC Group for $5.4B in cash to deepen its presence in the home healthcare business. LHC’s shareholders will be paid $170 per share.

LHC Group provides in-home health and hospice care to patients with injuries, illnesses, or chronic conditions. It operates in 964 locations across 37 states in the US. LHC will augment Optum’s primary care clinics and surgery centers.

UnitedHealth has also ventured into affordable housing with a goal to build 19K housing units and has invested $800M to this end. The investments are a part of the Health & Housing Fund, which the company launched in June 2020, in partnership with Stewards of Affordable Housing for the Future (SAHF) and the National Affordable Housing Trust (NAHT).

The company has made its intentions clear: bigger is better. The management team is determined to make these acquisitions work, even as they await regulatory approval. UnitedHealth’s shares have returned 3x over the last five years, and the shareholders are not complaining. Over to the regulators!

Market Reaction
UNH ended at $537.70, up 0.68%.

Company Snapshot 📈

UNH $537.70 +3.62 (0.68%)

Analyst Ratings (27 Analysts) BUY 85%  HOLD 11%  SELL 4%


Newsworthy 📰

Unprecedented: Netflix shares crater after hours as company loses subscribers for the first time in more than 10 years (NFLX -25.73%) (Afterhours)

Optimism: IBM forecasts upbeat 2022 revenue on cloud strength; flags Russia hit (IBM +2.36%)

Expansion: Blackstone bets on campus housing with $13B acquisition (BX +4.90%)


Later Today 🕒

  • Tesla Inc. Earnings (TSLA)
  • Procter & Gamble Co. Earnings (PG)
  • United Airlines Holdings Inc. Earnings (UAL)
  • Abbott Laboratories Earnings (ABT)
  • Alcoa Corp. Earnings (AA)
  • Anthem Inc. Earnings (ANTM)
  • Baker Hughes Earnings (BKR)
  • Lam Research Corp. Earnings (LRCX)
  • 11:30 PM IST: Federal Reserve Beige Book

Today’s Fun Fact

Every week, without fail, nearly one-third of the US population visits the Walmart stores


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