UnitedHealth Group: How They Are Transforming Health Care

 Ticker: UNH

Rating: Overweight

Price Target: $450

Target Date: 6/2021

💡 Summary

We decided to take a further look into UnitedHealth Group’s (UNH) participation in the overhaul of the US healthcare system to a more efficient, consumer-focused, and technology-led marketplace. What we saw was the UNH is a leading provider in the field and should be the catalyst for change in years to come. As such, we’ve updated our 2021 guidance and believe there is a path to establish above expected earnings in 2022 and beyond. Given this expected increase in earnings, we are therefore reiterating our overweight rating and raising our price target to $450!

🔑 Key Takeaways

Looking further into the details it seems that UNH is in a unique position to transform healthcare given their footprint both in the insurance market as well as the health delivery market (via Optum). When looking to see how they could “re-invent” the wheel we look to 4 key themes:

1. How they can change healthcare delivery via Optum
2. How Optum can transform pharmacy care services via OptumRx
3. Accelerating utilization of advanced technologies vs. their competition
4. Continued advancement of their services arm and the transition to value based care (VBC).

So when looking into these themes closer we realize that Optum truly is on the front of this change. The reason we say this is because of their transition to VBC and their outpatient focus. What is VBC? VBC is a payment model that offers financial incentives to physicians, hospitals, medical groups, and other healthcare providers for meeting certain performance measures and keeping patients healthy. Rather than traditional fee for service models where providers were paid solely on the amount of care they gave out. Why does this matter? With the transition to VBC, for the first time physicians will be focused on improving patient outcomes and looking to expand their offering. Additionally with this, Optum’s strategy on keeping patients out of hospitals and keeping the costs down for the healthcare system, will bode nicely with this transition to VBC. If done, successfully Optum should be in a position to radically command the healthcare services market and take significant market share away from the hospitals. This change could dramatically alter the space and subsequently increase earnings substantially for the growing group within UNH.

Additionally, adoption of telehealth was addressed across book of business and products/service offerings. During the COVID pandemic, United extended telehealth access to 6.5 million MA members (its entire MA book), with ~40% of MA members using a telehealth interaction since March, facilitating 22 million total telehealth visits year-to-date. This significantly dwarfs any other provider and should command more lives to their MA plans. These MA (Medicare advantage plans) are typically their highest margin plans and if they can transition successfully their “clients” to these plans. This should also boost revenue significantly.

Conclusion:

All in all, UNH is clearly leading the front on the change in HealthCare and as such we are continuing to be overweight the stock. We therefore are raising our price target based on our updated growth metrics into our DCF model!