After the Justice Department joined a lawsuit seeking over $1B from health insurer UnitedHealth (UNH) yesterday and the company's stock fell in the wake of the news, two research firms recommended buying the stock on the pullback.

BACKGROUND: The whistle blower lawsuit joined by the Department of Justice yesterday alleges that UnitedHealth knowingly overcharged the Medicare Advantage program. Specifically, the lawsuit alleges that, from 2011-2014, UnitedHealth did not take action when it discovered that health care providers were submitting false diagnoses to Medicare Advantage and consequently overcharging the program.

ANALYST REACTION: Leerink analyst Ana Gupte said the decline yesterday in UnitedHealth's stock in reaction to this news was overdone, noting that UnitedHealth disputes the charge and plans to mount "a vigorous defense." Moreover, it may be ten years before UnitedHealth will have to make any payments to the government stemming from the case, and the payments are too small to affect the company's balance sheet, the analyst stated. Gupte added that the company's margins will not be impacted by any changes to its Medicare Advantage revenue going forward because it had already become more conservative about its Medicare billing practices. The analyst reiterated a $210 price target and an Outperform rating on the shares. Similarly, Piper Jaffray analyst Sarah James recommends buying UnitedHealth on weakness. The stock's declines creates a "rare opportunity to buy a high-quality insurer...at a discounted price," she stated. The legal process could take a while to complete and should not affect the company's positive outlook, added James, who kept an Overweight rating on the shares.

OTHERS TO WATCH: James noted that other insurers - including Aetna (AET), Centene (CNC), Cigna (CI) and Humana (HUM) - remain under investigation as well and that CMS has looked into MA coding before, but hasn't chosen to make changes previously. Even If CMS decides to change methodologies, she does not think such changes will slow MA growth, she told investors.

PRICE ACTION: In morning trading, UnitedHealth rose 1% to $169.91.