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UnitedHealth Group, (UNH - Free UnitedHealth Group Stock Report) the largest U.S. health insurer and a Dow-30 member, has reported first-quarter results that beat expectations on both the top and bottom lines. Too, management lifted its full-year earnings guidance bracket. Initially, in premarket trading, the share price jumped considerably, but after the opening bell, the stock reversed course and was down more than 3%. The decline is likely tied to the continuing pressure being felt by the healthcare sector in response to uncertainty facing the industry's future. Much of this negativity developed due to a spotlight on early Democratic primary platforms, where candidates trumpeted everything from drug-pricing reform to Medicare-for-all plans. With that, UNH, which was one of the top Dow performers over the past few years, has fallen roughly 15% in price in the last month.

For the first quarter, revenues clocked in at $60.31 billion, a 9% rise from the $55.20 billion posted in last year's first quarter, and handsomely ahead of our $59.70 billion call. Even more impressive, the increase was broad-based across all of the company's operating lines. Premium growth was evident at UNH's legacy UnitedHealth business, as membership gains powered underlying metrics. Separately, the Optum branches continued to flex their muscles and show why this blue chip is a bellwether for the industry. Total revenues here were 12% higher on a year-over-year basis, or $26.36 billion. Care delivery, behavioral health, and health financial services were particular pockets of strength. Also, the pharmacy benefits manager (PBM) unit remains the gold standard in healthcare. Nonetheless, the business has added to the recent pressure on the stock. This equity, and the broader healthcare sector, is coming off its worst patch in almost a decade, as politicians propose changes to the industrywide system of rebates paid to insurers by drugmakers. These rebates are vital to PBMs' business models, and the prioritization of lowering prescription drug prices in the country has cast a political overhang on all parties.

From an earnings perspective, share net registered $3.73, versus our and Wall Street's average estimate of $3.60 and the $3.04 put up in the first quarter of 2018. Margins remained healthy and there were no surprises in the three-month window. However, the medical cost ratio, which compares premiums with the cost of delivering medical care, took a small turn for the worse. This metric came in at 82.0% from 81.4% a year earlier. The deferral of the health insurance tax was the primary reason for the negative uptick. Truth be told though, the showing was still better than most pundits had forecasted (82.2%).

For the full year, management upped its bottom-line guidance to a bracket of $14.50 to $14.75 a share. The previous spread had been $14.40-$14.70. In turn, we are tacking a dime on to our EPS expectation, which now stands at the apex of the aforementioned raise, or $14.75 a share. Notably, UNH management is historically conservative, so we view an increase in guidance this early in the campaign as a strong positive for the year ahead. Still, the investment community glanced right over this fact in light of the heavy political pressures that grabbed many of the headlines surrounding this earnings presentation.

We think subscribers should buy into this dip. UNH is a blue chip with excellent finances and a stellar track record of performance. Yes, the negative political backdrop is a major concern, but there is also the possibility that nothing will come of it. This stock was approaching $290 in the latter stages of 2018, and operations have only strengthened since then, yet the quotation is roughly $70 lower. From these reduced price points, 3- to 5-year capital appreciation potential has been enhanced dramatically, as has the yield these high-quality (Safety: 1) shares give out.

About The Company: UnitedHealth Group is a diversified health and wellbeing company dedicated to helping people live healthier lives and helping make the health system work better for everyone.. It offers a broad spectrum of products and services through four business segments: UnitedHealthcare (network-based health care benefits), Optum Health, OptumInsight, and OptumRx (information and technology-based health services, consulting, and PBM).

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.