Coventry pops on earnings; Molina slips
LOS ANGELES (MarketWatch) --
Coventry (CVH) was up nearly 11% to $34.07 after it reported higher revenue and earnings that beat Wall Street estimates, and projected full-year earnings would exceed analyst forecasts.
The company said net income was $91.7 million, or 65 cents a share, compared with $224.5 million, or $1.50 a share, a year ago. Sales were $3.52 billion against last year's $3.03 billion. Coventry's adjusted earnings were 68 cents a share, while analysts polled by Thomson Reuters called for 63 cents a share.
The company says it now sees earnings of $3.10 to $3.30 a share. The Thomson Reuters estimate was for $2.71 a share.
Allen F. Wise, Coventry's chairman and chief executive, said in a written statement that the company was seeing improvement in its Medicaid and Medicare programs, and was getting costs under control in its Kentucky operations, a trouble spot in the past.
Earlier in the week,
But shares of
The Medicaid insurer reported an 80-cent loss for the second quarter, and withdrew its forecast for the rest of the fiscal year. That stood in sharp contrast to the 2-cent gain that Thomson Reuters analysts sought from the company, as higher costs in Molina's Texas operations took a bite out of earnings, as well as bigger medical expense ratios in some of its other regions.
Long Beach, Calif.-based Molina's 80-cent loss translated to a shortfall of $37.3 million, swinging from a gain of $17.4 million, or 38 cents a share, for the same period a year ago. Revenue for the period was $1.54 billion against last year's $1.17 billion.
Molina saw a rapid membership expansion in Texas, adding 172,000 members and more than a quarter-billion dollars in sales. But costs also were driven up and the medical-loss ratio -- the percentage of revenue spent on providing care -- was 109.4%, up from 95% a year ago. Texas accounts for nearly a quarter of Molina's premiums.
In the Hidalgo and El Paso areas, the medical-loss ratios were 139% and 146%. But the company said the state's payout rates should improve, while costs will be driven down, and it expects to return to profitability in the region in the next several months.
Analyst Matthew Borsch of Goldman Sachs said in a note to clients that the Texas episode is proving to be a "learning experience" for the company that was expected to reap rewards from the Supreme Court's upholding of President Barack Obama's health-care overhaul. The bill includes Medicaid expansion that should benefit Molina.
"While the [second-quarter] loss is a big disappointment, this year should prove to be a learning experience for [Molina] and the industry as states move to convert the high morbidity segments of the Medicaid population to private-sector managed care," Borsch wrote. "The opportunity is big since these members represent a minority of members but a majority of spending. However, the [second-quarter] loss underlines the importance of adequate contract terms and rates."
Elsewhere, hospital provider
HealthSouth said net income attributable to shareholders was $40.4 million, or 43 cents a share, compared with $15.4 million, or 17 cents a share, for the same period a year ago. Revenue was $526.9 million against last year's $500.1 million.
Adjusted earnings were 39 cents a share, 3 cents ahead of the Thomson Reuters estimates. The company also raised its full-year forecast to a range of $1.45 to $1.50 a share, from $1.32 to $1.39 a share. The Thomson Reuters estimate calls for $1.49 a share.
Capital Group analyst Sheryl Skolnick said the results were positive and reiterated her "buy" rating on the stock.
"We like the story, but aren't raising our target price simply because we're nervous about the macro and fiscal environments and think multiple expansion may be tough," Skolnick said.
But that was what concerned Jefferies' Henderson as he downgraded the shares.
"While all this good news should push [HealthSouth's] stock price higher, we worry about the sustainability of the strength, particularly as investors contemplate end-of-year headwinds. Mixed economic data, a heated election and the impending fiscal cliff should all spark increased market volatility," Henderson wrote.
Among other health-care stocks,
EHealth said net income was $2.3 million, or 11 cents a share, compared with $2.7 million, or 12 cents a share, for the same period a year ago. Revenue was $35.5 million against last year's $36.2 million. Analysts polled by Thomson Reuters expected earnings of 5 cents a share.
And despite its own second-quarter earnings report that also beat estimates,
Net income was $97.8 million, or 56 cents a share, compared with $72 million, or 44 cents a share, for the same period a year ago. Sales were $637.4 million against last year's $524.2 million. Adjusted earnings were 59 cents a share, 4 cents above the Thomson Reuters estimate.
While many analysts were encouraged by the report, others wanted to see more. Anthony Vendetti of Maxim Group said there may be a softening of demand for its equipment.
"Although [Cerner] continues to generate sales and [earnings-per-share] growth, we believe it is largely reflected in its valuation. Additionally, based on 2012 and 2013 multiples, we don't believe valuation is attractive," Vendetti said in a note to clients.