Magellan Health slumps as analyst lowers rating

Magellan retreats from 9-year high as analyst cuts rating, citing contract losses in 2014

Associated Press

NEW YORK (AP) -- Shares of Magellan Health Services Inc. fell back from their highest price since 2004 Tuesday after an analyst downgraded the shares due to expected contract losses.

THE SPARK: Citi Investment Research analyst Carl McDonald said investors are underestimating how much income the company stands to lose.

He said the company will lose four major contracts in 2014, which could cost it up to 40 percent of its 2013 earnings before interest, taxes, depreciation and amortization.

Magellan disclosed this month that a pharmacy services contract will expire at the end of 2013 and won't be renewed. The company is protesting the loss of a Medicaid contract in Maricopa County, Ariz.

McDonald also said he expects Magellan to lose a Medicaid contract in Florida in October 2014 and a radiology services contract with Coventry Health Care, a unit of Aetna Inc., at the end of 2015.

The analyst downgraded the shares to "Sell" from "Neutral" with a price target of $52 per share.

THE BIG PICTURE: Magellan, which helps health plans, employers and government agencies manage health benefits, reported its second-quarter results on Thursday. Earnings beat Wall Street expectations while revenue rose 5 percent to $842.7 million, which was short of analysts' prediction, according to FactSet.

The company backed its forecast for the year of $3.27 to $3.93 per share in net income and $3.3 billion to $3.5 billion in revenue. Analysts expect $3.93 per share and $3.32 billion in revenue on average.

SHARE ACTION: Magellan Health Services shares declined $1.82, or 3.1 percent, to $56.41 on Tuesday. The stock has advanced 15 percent in 2013 and on Thursday it peaked at $60.54.

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