The Best In Health Insurance – UnitedHealth Group Inc. (UNH): CIGNA Corporation (CI), Aetna Inc. (AET)

Earnings Analysis: UnitedHealth Group Inc. (NYSE:UNH)When doing a recent examination of my portfolio, I realized that I had no exposure to the healthcare sector. Now, I will be the first to admit that I have absolutely no understanding of most biotech companies, the FDA approval processes, or the often insane price action produced by the stocks of these companies.

That leaves two ways to play it, big pharmaceutical companies or healthcare services companies. I explored the big pharma sector in another recent article, and today I’d like to look at healthcare services companies, so why not start big with UnitedHealth Group Inc. (NYSE:UNH)

About UnitedHealth Group

UnitedHealth Group provides a range of services, such as HMO’s, point of service (POS) plans, preferred provider organizations (PPOs) and other programs such as Medicaid and Medicare. The company’s total enrollment for health care services was just under 41 million people at the end of 2012, making the company the number one health insurance company by enrollment.

UnitedHealth Group Inc. (NYSE:UNH) has performed well over the past decade, and in fact the company’s revenue has quadrupled over that period (see chart). This is generally expected to continue, as analysts are projecting an 11.5% rise in revenue for 2013.

Why They Will Grow

Looking forward, however, even in the face of uncertainty in the general landscape of healthcare, I think that UnitedHealth and other companies like it will benefit over the next few years.  The main reason for this is simple: a rapidly aging population.  With a rising Medicare population and the transition of Medicaid beneficiaries into managed health care, UnitedHealth should have no shortage of business going forward.

The company has other upside catalysts as well that should allow them to gain market share, an example of this being the receipt of the U.S. Defense Dept. TRICARE contract.  The recent acquisition of Amil Participacoes, Brazil’s largest MCO significantly expands UnitedHealth’s international footprint as well.

Other options

As of the latest data, there are 803 health insurance companies in the U.S., of which UnitedHealth Group Inc. (NYSE:UNH) had the greatest enrollment. Competitors generally include the other large for-profit insurance companies, such as Aetna Inc. (NYSE:AET) and CIGNA Corporation (NYSE:CI).

Aetna offers similar services to UnitedHealth, and is about half of its size with 18.2 million members. They pay a dividend of 1.68% annually, and have only been paying significant dividends for the past few years ($0.04 per share until 2011).