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PHILADELPHIA - UnitedHealth Group Inc.'s business diversity and technology investments have helped power vigorous growth and made the company a favorite on Wall Street.
Now the challenge facing UnitedHealth, the nation's largest managed-care concern, might lie in continuing to meet the high expectations of investors, who have pushed the company's shares to all-time highs in recent days.
UnitedHealth serves more than 55-million people through six businesses, including some 20-million members of employer-based health plans. It manages services for Medicaid programs, offers Medicare products for retirees, provides specialized benefits such as dental and vision care, and sells data products and services to other health-care companies.
"United is the clear industry leader, with a combination of a diversified portfolio and a disciplined operational approach," Williams Capital Group analyst Adam Miller wrote in a mid September note to investors.
UnitedHealth has posted 30 percent earnings growth over the past five years and says it is taking market share while maintaining pricing discipline and expanding margins. The company cites large increases in U.S. health-care spending as a key growth driver.
Growing competition, rising medical costs and a sluggish job market could continue to pose challenges, although UnitedHealth appears to be girding itself for life as a bigger company.
The insurer has gained heft recently through some major acquisitions, including this summer's $4.9-billion purchase of Oxford Health Plans Inc., which gave it a stronger toehold in the Northeast. As a sign of its growth, UnitedHealth recently tapped Northwest Airlines Corp. chief executive Richard Anderson as executive vice president.
To remain in investors' good graces, UnitedHealth will have to maintain its membership and earnings growth in an industry that's consolidating.
The pending merger of WellPoint Health Networks Inc. and Anthem Inc., though under challenge by a California regulator, could dislodge UnitedHealth as the nation's largest health insurer.
However, UnitedHealth senior vice president John Penshorn said the fate of the Blue Cross-Blue Shield operators' merger will have no effect on the company.
For years, UnitedHealth has set a long-term goal of 15 percent annual earnings growth, and it has logged gains of at least 30 percent for the past five years, even as a tepid job market has pressured enrollment growth in the industry. It remains to be seen whether the company will exceed the 20 percent increase it forecast for 2005.
"Companies earn the right to higher numbers," Penshorn said, "but life isn't simple and challenges arise, so we are prudent in providing dependable earnings outlooks and we challenge ourselves to do the things necessary to build the business."
As the company gets bigger, though, the size of its earnings base will naturally slow the percentage gains and over time the growth rate will moderate to the 15 percent target, Penshorn said. That's still fast growth for a company that expects revenue of $44-billion next year, he added.
UnitedHealth sees itself not just as a managed-care company, but as "a diversified health-services company" that would like to grow in the direction of other multifaceted operations such as Johnson & Johnson and American International Group, Penshorn said.
UnitedHealth expects revenue growth of 28 percent this year, with roughly 20 percent attributed to recent acquisitions.
Fitch Ratings recently affirmed its "A" ratings on UnitedHealth debt, citing good balance-sheet fundamentals and business strength, but noting some challenges, including competitive pressures in several core markets and rising medical cost trends.
Wall Street likes the company. Merrill Lynch raised its 12-month price target on UnitedHealth recently to $81 from $75 and said that over the past year, the company has undertaken initiatives that "taken together have helped the company to expand its footprint in the industry."
On Monday, the stock closed at $73.25, down 15 cents, on the New York Stock Exchange.