The onslaught of political attacks on UnitedHealth Group Inc.'s (UNH) business are preventing any pops for the stock.
Shares of the insurance giant have slipped nearly 5% at daily lows, barely holding over oversold territory, despite a beat on top and line earnings estimates and a raised 2019 outlook.
"Despite robust results from UNH this morning, a rally in MCO (Managed Care Organization) stocks proved to be short-lived as investors still grapple with the tug-of-war of operational strength for this group vs. political headline risk," commented Barclays analyst Steve Valiquette, citing the focus by various Democratic presidential candidates on Medicare for All single-payer health system proposals.
The politics surrounding the stock have reached a fever pitch as of late, headlined by a specific call out from 2020 presidential contender Bernie Sanders.
Our message to Steve Nelson and UnitedHealthcare is simple: When we are in the White House your greed is going to end. We will end the disgrace of millions of people being denied health care while a single company earns $226 billion and its CEO makes $7.5 million in compensation. https://t.co/OafOIT92H9— Bernie Sanders (@BernieSanders) April 12, 2019
"The political atmosphere is still hostile," Real Money contributor Stephen "Sarge" Guilfoyle commented in his Tuesday morning column. "Until that changes, there remains the shadow of danger to investing in the space."
Still, it is not simply left-wing candidates attacking the company for the "middle-man" status it operates in the PBM (Pharmacy Benefit Manager) business. UNH is in a rare position as a company criticized by politicians on both sides of the aisle in Washington.
"What do you do when a name that you own is part of a larger group that is targeted by the administration of the president of the United States, and on top of that in the currently contentious atmosphere in D.C., this is the one area where the opposition agrees with the administration?" Guilfoyle wondered. "I would think that the investor might sell, and that's what I did."
To be sure, CEO David Wichmann attempted to take on the congressional and presidential criticism during the earnings call, arguing against further regulation.
"The wholesale disruption of American health care being discussed in some of these proposals," Wichmann told analysts on Tuesday morning's conference call, would "only jeopardize the relationship people have with their doctors."
Wichmann warned the proposals would also "destabilize the nation's health system and limit the ability of clinicians to practice medicine at their best," while also having a "severe impact on the economy and jobs."
"The path forward is to achieve universal coverage and it could be substantially reached through existing public and private platforms," Wichmann said.
The UNH CEO also argued that a move to a government-sponsored program would be counterproductive, instead advocating a sort of middle ground where caveats can be offered.
"Changes that eliminate unnecessary and costly regulatory frameworks and taxes that address under-investment in social determinants of health," are needed, Wichmann said, as well as "changes that encourage people to take accountability to modify lifestyle behaviors that drive a significant percentage of their lifetime health care need."
"The best system is one which is informed engaged and aligned. Where people (have) their doctors" and the "private and public sectors work together to improve or sustain individual health while improving the performance of the health system for everyone."
Andrew Witty, CEO of UNH's PBM unit Optum, added to the offensive against regulation, arguing that PBMs act as a necessary arbiter to ensure lower cost of care.
"As you well know, the only mechanism that exists today is essentially the volume that segregated by companies like OptumRx to be able to then negotiate effectively with pharmaceutical companies who otherwise would have complete independence on what they do with their list prices" he explained. "There is a real risk that if there is a situation where the rebates or a mechanism to replace rebate was not in place because (of) the significant drug price inflation, over the next years that would set back a huge amount of the efforts that being achieved over the last 10 or 15 years to try and bring more control to this area."
The market appears to have deemed this a losing argument in the battle against the political tide. As such, shares have reacted negatively and soured the chart outlook for the company in turn.
"Money flow has started to weaken and continue the trend of outflows from March," Real Money chartist Bob Lang noted. "We could see this continue downward to the lower end of the channel, putting it near the 200 level. This is not a stock you want to play around with on the long side, as evidence post earnings today."