UNH stock analysis: buy or sell UnitedHealth after the DoJ investigation news

UnitedHealth stock price has been on a roller-coaster in the past few months. It initially peaked at $620 in December last year and then plunged to a low of $235 this year, erasing billions of dollars in value.

Most recently, the UNH stock price rebounded after Warren Buffett announced a huge stake in the company, a sign that he expects the business to recover eventually.

Why UNH stock pulled back this week

There are two main reasons why the UnitedHealth Group stock price has pulled back this week. First, the decline is happening as the momentum surrounding the Buffett acquisition faded. Historically, investors buy a stock or other assets after a major event and then start to exit as the hype fades. 

A good example of this is what happened on Friday when the stock market surged after Jerome Powell delivered a dovish speech. While this was a welcome thing, the stocks and the crypto market reversed and crashed this week.

UNH stock price has also crashed after the latest revelation that the ongoing Department of Justice investigation is more than what analysts were expecting. 

Bloomberg noted that the DOJ was investigating the company regarding its prescription management services known as OptumRx,  and the reimbursement process for its doctors. 

The investigation was initially reported by the WSJ in May last year, which noted that the department was looking into its Medicare Advantage, an industry that it dominates.

In addition to this, the company is also facing antitrust investigations, while the Federal Trade Commission has sued it and its competitor PBS of driving insulin prices. UNH calls this suite baseless and vowed to defend itself. 

The most recent results showed that the company‘s revenue jumped to $116 billion in the second quarter from $98 billion in the same period last year. However, its margins and profitability narrowed during the quarter, with the earnings from operations falling to $5.2 billion. 

Most importantly, the company also re-established its guidance for the year. It now expects to make between $445 billion and $448 billion this year and earnings per share of at least $14.65.

Meanwhile, analysts at Morgan Stanley downgraded the stock to $325, and maintained its overweight rating. Its $325 forecast is higher than the current $300 and lower than the average analysts' estimate of $328. 

The most likely scenario is where the stock will remain under pressure during the ongoing investigations and rebound when it demonstrates that these challenges are now behind it.

UnitedHealth Group stock analysis

UNH stock chart | Source: TradingView

The daily chart shows that the UNH stock price peaked at $620 in December and then crashed to $233. It has now rebounded to $300 as investors cheer Warren Buffett’s investment. 

Most recently, there are signs that it has formed an island reversal pattern, which happens when an asset forms a gap and consolidates. That is a sign that it may attempt to fill the gap it made after the Berkshire accumulation. A complete recovery will be confirmed when it moves above the 100-day moving average at $335.

Read more: Insiders are buying UnitedHealth stock on the crash: should you follow suit?