Uh-oh. Revenue and earnings growth slowed down a bit in the third quarter at UnitedHealth
While I'd imagine that UnitedHealth will find it increasingly difficult to grow at the rates to which some investors may be accustomed, that's hardly the end of the story in my book. This is an industry-leading company with solid management, great cash flow, and a recurrent revenue stream. You don't just buy a box of UnitedHealth-brand health care every so often; you pay every month -- whether you use the services or not -- and that's a great model.
For the third quarter, revenue climbed 15%, while net income grew by more than 20%. Operating cash flow performance was also quite strong, rising about 25%, and the company has generated more than $3 billion in conventionally defined free cash flow so far this year (or about 10% of revenue).
Looking at the operating statistics, it looks like it has been steady as she goes. UnitedHealth's medical loss ratio continues to move in the right direction as revenue gains stay ahead of medical costs and operating costs. Enrollment trends looked basically OK, and operating margins improved by at least 5% in three of the four operating segments. What's more, guidance seems pretty sanguine and doesn't appear to include a great deal of expectations for immediate post-merger synergies once PacifiCare
For the benefit of those longer-term investors in the audience, it's probably worth taking a quick look at what's going on in the health management space. After all, we all keep reading news articles about how higher costs are leading more and more businesses to curtail or drop health plans as part of their benefits packages.
It's true that high costs are a problem and it's easy to blame the likes of UnitedHealth, Coventry
In the meanwhile, I think you can make a case for UnitedHealth earning its "street cred" as a stalwart grower and, perhaps, one of those companies whose quality and sustainability of earnings can reasonably carry a higher-than-normal valuation.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).