Considering UnitedHealth Group Inc. (NYSE:UNH)’s scale of operations, Humana Inc (NYSE:HUM) may not be a significant competitor but is still an important player in the market.
2012 was a significant year for the company, as it achieved several milestones. The company made significant progress in the Medicare advantage star-quality ratings, representing the satisfaction level of the plan members on an overall basis. The study was based on combined analysis of various qualitative and quantitative data.
The first quarter of fiscal 2013 saw the company report strong performance, as revenue increased by 2% to $10.5 billion and the company recorded strong cash flow with cash equivalents of $11.4 billion, up $200 million from the previous quarter.
Going forward, the company plans to expand its Medicare Advantage business despite the proposed cuts, as this particular business division facilitated in propping up the insurer’s revenue. Humana’s CEO Bruce Broussard stated
[The] company will continue that upward trend, even in the face of continued cuts to Medicare Advantage, the most recent of which led to a downturn in Humana’s stock.
The Medicare program has enabled the company in exponentially increasing its revenue in the past decade. The program added approximately $9 billion to its overall company value, and during 2012, revenue from the Medicare Advantage program stood at $16 billion, which is 64% of its overall revenue. I believe the persistent approach of the CEO will surely pay off for Humana’s shareholders.
Foolish bottom line
Healthcare is one of the largest sectors, with healthcare spending in the U.S. making up for 18% of the GDP. An aging American population, together with major reforms in the healthcare sector — courtesy Obamacare –make this sector incredibly challenging and valuable.
UnitedHealth Group Inc. (NYSE:UNH)’s global presence and strong financial fundamentals give it a strong competitive edge, not just in the U.S. market but the international markets as well. This is a fact duly represented by the company’s recent quarterly and year-end revenue.
Moving forward, I believe the company looks poised for robust growth. It should be noted that private health insurance enrollments make the highest contribution to the overall revenue and hold the maximum value in UnitedHealth’s stock price.
According to the projections offered by Trefis, total enrollments in the U.S. declined during 2011 predominantly due to rapidly escalating unemployment. However, Trefis forecasts a turnaround, and rapid growth should resume from 2014 onward owing to the patient protection and affordable care act. This should result in an exponential increase in enrollments in the future unless there is a major political intervention to alter the act.
I believe the future trends are more than sufficient to motivate investors to put their hard-earned money in UnitedHealth. For investors seeking to diversify their portfolio through investing in the healthcare sector, UnitedHealth is certainly a buy.
The article UnitedHealthGroup: A Foolish Buy! originally appeared on Fool.com and is written by Kiran Gulati.
Kiran Gulati has no position in any stocks mentioned. The Motley Fool recommends UnitedHealth Group. Kiran is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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