On Dec 19, Zacks Investment Research downgraded Universal American Corp. (UAM) to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
Universal American witnessed downward estimate revisions following weak third-quarter 2013 results, which included a negative surprise of 214.3%. Shares of this life-insurer lost nearly 5.2% since the company reported soft results on Nov 7 and given its expected negative earnings growth rates in the upcoming quarters, we feel it has more downside left.
Universal American reported third-quarter operating loss per share of 8 cents. Results deteriorated significantly from the year-ago quarter earnings of 16 cents and the Zacks Consensus Estimate of earnings of 7 cents.
The underperformance by Universal American was largely due to a decline in its top-line along with an increase in expenses. Lower premiums, fees and net investment income dragged the top line reduced the top-line by5.3% year over year. On the other hand, higher benefit expenses and deferred acquisition costs led to increase in expenses that in turn led to an operating loss.
Universal American’s Financial leverage deteriorated 300 basis points to 17.5% at the end of Sep 2013 from 14.5% at 2012-level. Book value per share and return on equity also suffered.
Universal American’s attempts to focus primarily on Medicare Advantage markets are yet to show any desired positive results. Sluggish business renewals and lack of growth catalyst for its health insurance and managed care products in the intensely competitive healthcare industry further add to the woes.
Over the last 60 days, the Zacks Consensus Estimate for 2013 plunged 67.6% to 12 cents per share as all the estimates were revised downwards. Moreover, the estimate for 2014 decreased 38.5% to 24 cents over the same period.
Other Insurers Worth a Look
We prefer to avoid Universal American for the time being. However, investors interested in the insurance industry may consider stocks like StanCorp Financial Group Inc. (SFG), American Equity Investment Life Holding Co. (AEL) and Manulife Financial Corp. (MFC). While StanCorp sports a Zacks Rank #1 (Strong Buy), both American Equity and Manulife carry a Zacks Rank #2 (Buy).