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; firstname.lastname@example.org