UnitedHealth Group, King of Healthcare (Part 1)

Welcome to PART 1 of our in-depth look at UnitedHealth Group (UNH), brought to you in partnership with my colleague,

Demetris Theodoulou

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As the largest healthcare company by revenue, UnitedHealth operates at the crossroads of health insurance and healthcare services, with its dual arms—UnitedHealthcare and Optum—serving millions of people in the U.S. and worldwide.

In this first part, I’ll take you through UNH's investment thesis, competitive advantages, revenue sources, and growth drivers to understand why this company remains a top-tier defensive-growth stock.

In PART 2, Demetris will dive into the U.S. healthcare landscape, providing a macro view and breaking down UnitedHealth’s latest earnings report. Make sure to follow Demetris for his expert analysis!

Investment Analysis

UnitedHealth Group (UNH) is a healthcare behemoth that continues to demonstrate strong growth and stability. As the largest healthcare company by revenue, UNH operates at the intersection of health insurance and services through its dual segments, UnitedHealthcare and Optum. With its dominant position in the U.S. healthcare system and its expanding global footprint, UNH has become a reliable investment for those seeking a blend of defensive stability and growth potential. Let's break down why UNH remains a solid long-term investment.

Investment Thesis: A Defensive-Growth Play

UnitedHealth Group stands out as a unique investment, balancing its role as a defensive stock in the ever-stable healthcare sector while also delivering impressive growth. Over the past five years, the company has achieved double-digit growth of 22.3%, driven by its diversified business model. With its roots in health insurance and its expansion into healthcare services through Optum, UNH is positioned to capitalize on the increasing demand for healthcare solutions both in the U.S. and globally.

UNH's revenue of $381 billion in 2023 cements its place as the largest healthcare company by revenue worldwide. Its combination of robust revenue streams and leadership in key markets makes it a resilient and undervalued investment, especially in times of economic uncertainty.

UnitedHealth Group’s Economic Moat: A Competitive Edge

While UnitedHealth Group is generally considered to have a narrow economic moat, its scale, integration, and network effects give it significant advantages over competitors.

Economies of Scale & Cost Advantages

• Largest Insurer in the U.S.: UnitedHealthcare, UNH’s insurance arm, covers the most lives in the U.S. and writes the most premiums, giving it the ability to spread its fixed costs across a vast customer base. This scale drives cost efficiencies that smaller competitors can’t match.

• Bargaining Power: With its massive network of healthcare providers and hospitals, UNH can negotiate better rates for its members, enhancing its cost advantages. This network also helps attract more customers who benefit from lower premiums and broader access to care.

Integrated Healthcare Model

• Optum's Expanding Reach: UNH's healthcare services arm, Optum, operates in over 150 countries, offering everything from pharmacy services (OptumRx) to data analytics (OptumInsight) and health services (OptumHealth). This integration allows UNH to control more aspects of healthcare delivery, helping the company capture more value while improving patient outcomes.

Network Effect

• Attracting More Providers: UNH's scale incentivizes healthcare providers to join its network, as they gain access to a large and diverse customer base. This creates a positive feedback loop where more customers and providers lead to even greater scale and bargaining power.

Diverse Revenue Sources: Strong Foundation for Growth

UnitedHealth Group derives its revenue from four core segments, providing a well-diversified business model that can weather economic volatility.

• UnitedHealthcare (60% of Revenue): This is the traditional insurance arm, serving individuals, employers, and governments. With the growing demand for health insurance, especially through Medicare Advantage, this segment remains the bedrock of UNH's revenue.

• OptumRx (26% of Revenue): As one of the top three pharmacy benefit managers in the U.S., OptumRx plays a crucial role in managing prescription drug benefits for millions of people. The company is well-positioned to capture additional market share as healthcare costs rise.

• OptumHealth (11% of Revenue): OptumHealth provides healthcare services like care delivery, management, and wellness programs. With more consumers seeking integrated health solutions, this segment is expected to grow steadily.

• OptumInsight (3% of Revenue): Specializing in healthcare data and analytics, OptumInsight delivers insights and technology solutions to improve healthcare efficiency and outcomes.

Key Growth Drivers

As healthcare needs evolve, UnitedHealth Group is well-positioned to capture long-term growth through several key drivers:

1. Medicare Advantage Enrollment

The Medicare Advantage market is growing rapidly, and UnitedHealthcare is the leader in this space, with a 26% market share as of 2024. Enrollment in Medicare Advantage is expected to increase significantly, from 35% of eligible enrollees in 2020 to 47% by 2025, and potentially 70% by 2040. As the U.S. population ages, UNH will benefit from this structural growth trend.

2. Expansion of Optum

Optum is the fastest-growing segment of UnitedHealth Group, driven by its diverse healthcare services and technological innovations. Optum is expected to continue its growth trajectory, benefiting from its strong position in healthcare services, pharmacy management, and data analytics. In particular, OptumRx is positioned to capture a large portion of the expanding U.S. pharmacy benefit management market, which is projected to reach $700 billion by 2025.

3. Global Expansion

UNH has been increasing its presence in international markets, serving nearly 8 million people outside the U.S. With a focus on Brazil, Chile, Colombia, and Peru, the company is tapping into fast-growing healthcare markets. This international expansion provides a new revenue stream that diversifies UNH's risk and positions it for global growth.

Conclusion: UNH as a Long-Term Investment

UnitedHealth Group is a compelling investment due to its dominant market position, diversified revenue streams, and strong growth drivers. With its expanding Medicare Advantage market share, the rapid growth of Optum, and international expansion, UNH is poised for long-term success. For investors seeking a stable yet growth-oriented stock, UnitedHealth Group offers both defensive protection and potential for future returns, making it an undervalued opportunity in today’s market.

Thanks for joining us for PART 1—stay tuned for Demetris's insights on UNH’s financials and the U.S. healthcare landscape in PART 2!

Written by Timothy Assi, an Elite Popular Investor on eToro.

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