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UnitedHealth Group Inc. (UNH): A Foolish Buy!

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UnitedHealth Group Inc. (NYSE:UNH) is one of the largest diversified healthcare companies in the world and the largest in the United States if not the entire North American continent. The company has a diversified set of product lines with the ultimate objective of providing affordable healthcare to millions.

UnitedHealth Group Inc

Last year was a successful one for UnitedHealth Group Inc. (NYSE:UNH). In spite of finding itself surrounded by a tumultuous economic environment, the company recorded revenue of $111 billion, up 9% year-over-year from $102 billion during 2011.  Additionally, the company added nearly 8 million new customers in the year, with Brazil accounting for 6 million. The remaining 2 million were added in through the US market.

UnitedHealth Group Inc. (NYSE:UNH) has been a firm believer in challenging the status quo, and with this approach constantly moves on the path of innovation. The company’s recent innovations include a mobile app, which enables its millions of customers 24/7 access to registered nurses, nearby network physicians, hospitals and other medical facilities.

The “Optum Care Suite” and “My Healthcare” cost estimator are some other key innovations that the company developed in recent times. Going forward, I believe it will add substantial value for the customers and create solid goodwill.

It must be noted that fiscal 2012 was an extremely good year for the healthcare major. Not only did the company make financial gains, it was added to the prestigious Dow Jones industrial average, the benchmark index of NYSE, owing to the company’s consistent earnings and generous trade volumes.

The company received several accolades owing to its corporate and core financial performance and several social contributions. UnitedHealth Group Inc. (NYSE:UNH) was added to the Dow Jones sustainability world index and was voted one of the most admired company in the insurance and managed healthcare sector in the 2012 Fortune rankings. It earned a single A (stable outlook) corporate debt rating upgrade by global ratings firm Standard and Poor’s. Furthermore, it ended 2012 in 22nd place in the global Fortune 500 rankings, further exemplifying its market standing.

The company seems primed for success with over 100,000 employees in the U.S, which serve over 84 million customers worldwide, coupled with a  network of over 780,000 physicians and care professionals the cover the entire American population. These strong fundamentals make the company a formidable player in the healthcare market.

UnitedHealth Group Inc. (NYSE:UNH) further proves its fundamental financial strength, as it posted robust performance during the first quarter of 2013. Revenue exceeded $30 billion, which is an 11% year-over-year increase. Optum generated reported revenue growth of 15% and an operating earnings growth of 96%. The company managed to add over 1 million users to its customer base, resulting in great quarter for UnitedHealth .

A deeper analysis of the financials reveals strong potential for future growth in earnings and revenue. The company has a forward P/E of 11.1, down from the current P/E of 12.6, indicating growth in earnings.

Competitive landscape

Healthcare as a sector is highly competitive; UnitedHealth likewise has a bunch of healthy competitors to keep the company constantly on its toes.

UnitedHealth faces significant competition from Aetna Inc (NYSE:AET) and Humana Inc (NYSE:HUM), however these companies are relatively smaller compared to UnitedHealth Group Inc. (NYSE:UNH), which gives the company the significant advantage through larger scale.

Aetna’s envisions” is slowly becoming the market leader in the diversified and large healthcare-services sector. It offers cost-effective healthcare solutions to millions. The company is entirely focused on providing innovative and tailored services to meet the needs of its customers and developing a diverse supplier base reflecting the multicultural environment.

Aetna Inc (NYSE:AET) believes the role of a commercial organization goes beyond just earning profits and community service plays an important part in its overall strategy. It is for this reason why the company was ranked fourth in the Civic 50 survey of most community-minded companies in 2012.

A look at the financials and the company doesn’t disappoint, as 2012 saw it record a 6% growth in revenue and net earnings close to $1.7 billion. The company looks focused  on expense management, as its cost-cutting initiatives enabled it to reduce its operating expense ratio. Although these figures look meek compared to UnitedHealth, they still enable me to keep an optimistic view on the company.

The first quarter of fiscal 2013 saw the company move along similar lines, cutting expenses and bolstering its revenue. In the long term, the company looks poised to sustain its growth and profitability and become a significant player and a formidable threat to UnitedHealth.

Important market player

Humana Inc (NYSE:HUM) is another company competing for market share in the healthcare services-solutions market, providing innovative and tailor-made solutions for its customers. The company primarily offers insurance products and health and wellness services.

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