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Humana Inc. Message Board

  • friend_of_the_deceased friend_of_the_deceased Apr 19, 2000 12:50 PM Flag

    HMO earnings dj article pt.1

    Managed-Care Cos Expected To See Strong 1Q, Rate
    Hikes
    By JOHANNA BENNETT

    NEW YORK -- Commercial
    rate increases on renewed policies and the benefits of
    share-repurchase programs should help large-cap managed-care
    companies post strong first-quarter results.

    Revenue
    at most publicly traded health maintenance
    organizations will be driven largely by pricing rather than by
    enrollment, as companies continue to boost commercial
    premiums and pull away from unprofitable Medicare markets,
    analysts said.

    "It looks like a pretty good
    quarter," said Deutsche Banc Alex. Brown analyst Gary
    Frazier. "Many of the companies we have spoken to are
    either looking at on or above consensus
    estimates."

    First-quarter results are generally upbeat in the HMO sector
    since medical-costs pressures traditionally don't
    filter down to companies' bottom lines until the second
    or third quarter of each year. Companies, while
    having a firm grasp of their revenue outlook in the
    quarter, still estimate many of their costs later in the
    year.

    "It's rare to see disappointments in the first quarter.
    It is the period when you have gotten new
    enrollment, rate increases and you are just starting to
    figure out what your cost trends are," said Banc of
    America Securities LLC analyst Todd Richter.

    Of
    course, there are always exceptions to the
    rule.

    Last year, Humana Inc. (HUM), based in Louisville,
    Ky., surprised the market when first-quarter earnings
    fell below expectations due to higher-than-anticipated
    medical expenses. Since then, however, the company
    adopted a series of strategies to improve its
    performance, including a more aggressive approach to
    pricing.

    This year, Humana, the nation's second-largest
    Medicare HMO, is expected to post first-quarter earnings
    of 15 cents a share, down from first-quarter 1999
    earnings of 20 cents a share. The dip is due largely to
    the company's decision to change the amortization
    schedule for its goodwill, which will add $25 million a
    year in administrative expenses. But that should be
    partly offset by a $13 million decrease in depreciation
    and amortization expenses from a previously reported
    write-down of certain assets, Frazier said. "The sloppiest
    quarter should come out of Humana," said Deutsche Banc's
    Frazier said

    Elsewhere, Aetna Inc. (AET), the
    nation's largest managed-care company, is expected to earn
    $1.12 a share for the first quarter, up from $1.01 a
    share last year.

    Worries About Prudential
    Unit
    But with Wall Street analysts, how much Aetna earned
    last quarter will take a back seat to worries about
    the company's money-losing Prudential Healthcare
    unit, which Aetna purchased for $1 billion from
    Prudential Insurance Company of America (X.PIC), and whether
    Aetna's new management stands behind previously-stated
    guidance.

    "It's too soon to tell. My guess is that they will
    stand behind expectations for the year. I don't think
    Aetna's real problems will materialize until next year
    when we see the Prudential business without
    protections," said Banc of America's Richter.

    Analysts
    will also watch for the quality of Aetna's
    earnings.

    The company's fourth-quarter 1999 results
    disappointed Wall Street - even though profits of $1.18 a
    share beat estimates - because they depended on a
    falling income tax rate and $33 million in equity
    earnings from the sale of a Brazilian
    holding.

    Meanwhile, rising pharmaceutical costs led to higher
    medical-costs ratios - the percentage of every premium dollar
    paid to cover medical costs - that sapped profits from
    Aetna's domestic and global health-care units.

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    • enough to provide to us doesn't seem to be exactly positive on HUM when it says "the sloppiest quarter should come out of Humana".

    • friend_of_the_deceased friend_of_the_deceased Apr 19, 2000 12:51 PM Flag

      United Health Group (UNH), formerly United
      HealthCare Corp., is not expected to suffer the same
      problems.

      The Minneapolis-based company appears poised to
      continue its string of strong quarterly results by meeting
      or beating Street expectations of 91 cents a share
      with solid fundamentals, said Merrill Lynch analyst
      Roberta Walter Goodman. The company earned 72 cents a
      share a year ago.

      United Health Group's 1998
      realignment, which divided the firm into six business
      segments, should result in administrative savings and an
      acceleration in units not related to its health-care business,
      Goodman said. Investors should also expect modest revenue
      growth of 5% and 24% growth in earnings before interest,
      taxes, depreciation and amortization, she
      said.

      Cigna Corp. (CI), one of the managed-care industry's
      strongest performers, also stands as a contender to beat
      Wall Street's earnings target of $1.46 a share,
      compared with the $1.10 a share earned in the first
      quarter of 1999.

      The company's health-care
      business is expected to perform well, Goodman said, adding
      that Cigna should also benefit from one of the
      industry's most aggressive share repurchase
      programs.

      Analysts agree that Oxford Health Plan Inc.'s (OXHP)
      turnaround is proceeding. The Norwalk, Conn., HMO, which
      fell into serious financial trouble two years ago, is
      expected to report its third consecutive profitable
      quarter, with earnings of 26 cents a share, up from last
      year's first-quarter loss of 6 cents a
      share.

      Goodman's estimates are slightly above the Street's at 27
      cents a share.

      Oxford's top line is not growing,
      Goodman said. First-quarter premium revenue is expected
      to decline as the company dumps unprofitable
      accounts. But earnings benefited from an improved business
      mix, higher premiums and expanded margins.

      "The
      company is not growing as measured in top line, but they
      have contracted to a more profitable book of
      business," Goodman said.

      Management at Pacificare
      Health Systems Inc. (PHSY) believes that it could beat
      first-quarter consensus estimates of $1.70 a share, up from
      $1.61 last year, based on the results of the first two
      months of the quarter, Frazier said. But close attention
      should be paid to the quality of those earnings, he
      added.

      "This is an industry segment where, when a company
      indicates to analysts that they can beat estimates, there
      have been quality issues," Frazier said.

      The
      nation's largest Medicare HMO, which takes about 60% of
      its revenue from the federal government's health plan
      for the elderly, stands to benefit from strong
      premium growth as well as continued cost discipline. But
      less substantial items such as tax rate and investment
      income can also be used to bolster a company's bottom
      line.

      Management Change
      Pacificare's management is
      set to change with the retirement of Chief Executive
      Alan Hoops next year. Also, a share repurchase program
      is expected to contribute heavily to this year's
      earnings per share figure, Frazier said.

      Wellpoint
      Health Networks Inc. (WLP) remains one of the HMO
      industry's most reliable earnings performers with
      first-quarter profits targeted at $1.22 a share, up from
      first-quarter 1999 profits of $1.04 a share.

      Focused in
      the commercial market, Wellpoint does not have to
      fight against Medicare funding cuts, Merrill's Goodman
      said. Because Wellpoint steered clear of the
      price-cutting wars other HMOs entered a few years ago to
      attract large employers, the company has not been forced
      to play catch-up with its pricing, Goodman
      added.

      Rounding out the large-capitalization managed-care
      companies is Foundation Health Systems Inc. (FHS). The
      company is expected to earn 28 cents a share, up from 23
      cents a share during the first quarter of 1999.


      -Johanna Bennett; Dow Jones Newswires;
      201-938-5240;
      johanna.bennett@dowjones.com

 
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