Shares of UnitedHealth Group (UNH Free UnitedHealth Stock Report), the nation's largest health insurer and a Dow-30 component, were down more than 2% in early market trading this morning following the release of the company's June-quarter results. The decline is a bit surprising to us, as revenues were in line with expectations and adjusted earnings were better than anticipated. Too, management upped its bottom-line guidance for 2019. The latest share-price weakness comes on the heels of a period of significant decline in value for UNH shares, which bottomed out in April, after Bernie Sanders unveiled his plan for a single-payer healthcare system, now being referred to as "Medicare For All". Yes, the likelihood of pushing such a proposal through is not high. Still, jittery investors got more nervous and profit-taking was rampant. Things calmed down as the summer set in, and the stock price is back trading at pre-April levels. 

In terms of revenues, the top line clocked in at $60.59 billion, just about on par with our $60.60 billion expectation, and up nicely from the $56.09 posted in the year-earlier period. UnitedHealthcare Medicare & Retirement, part of the legacy health insurance portfolio, as well as OptumRx and OptumHealth, posted a double-digit gain. Digging deeper, OptumHealth's top line advanced more than 20%, year over year, with strength across the board, namely care delivery, behavioral health services, and complex care management.

From an earnings perspective, share net registered $3.60 on an adjusted basis, both we and Wall Street were looking for $3.45. Second-quarter medical cost trends remained favorable. The deferral of the health insurance tax drove a 120-basis-point improvement in the consolidated medical cost ratio versus the second quarter of last year. That figure now sits at 83.1%. Also, the operating cost ratio was 110 basis points better on the strength of productivity advances and improved cost-management discipline. In turn, management lifted its full-year 2019 bottom-line guidance range to $14.70 to $14.90. As such, we are adding a full $0.20 to our estimate, which now stands at the zenith of that spread, or $14.90. Our revenue call remains at an even $245 billion.

The month of June was a particularly busy one for the company. First, UnitedHealth purchased PatientsLikeMe, a startup that helps connect people with similar health conditions. That entity will be tucked into the research side of the coin. Then, Equian LLC, a healthcare payments provider was also bought for roughly $3.2 billion. Management also completed its acquisition of DaVita's physician group. Separately, the quarterly dividend was raised by 20% in June, as well. That stipend now stands at $1.08 per quarter ($4.32 per annum), equating to a yield of roughly 1.6%. The payout is a solid enhancement to the overall investment profile, but is subpar versus the Value Line median of 2.2%.

We think investors with a longer-term bent would do well to look elsewhere. Financials are strong and total return out to 2022-2024 is decent, but the "Medicare For All" situation adds an elevated level of risk that most parties will not want to deal with. Political rhetoric may well be steering the ship with regard to UNH's quotation in the coming months, so those that do initiate a position need to keep a watchful eye on the headline news.

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.