* Q1 EPS 62 cents vs 63-cent Street view
* Profit forecast effectively slashed, analysts say
* Medicaid costs in Kentucky in focus
* Follows Aetna’s Q1 miss on Thursday
* Shares drop 11 percent
(Adds analyst comment, share movement)
By Lewis Krauskopf
April 27 (Reuters) – Insurer Coventry Health Care Inc
reported a lower-than-expected quarterly profit and
issued a disappointing full-year outlook as costs from a
Medicaid plan for low-income Americans weighed heavily on
results, and its shares fell 11 percent.
While overall enrollment in Coventry’s Medicaid plans nearly
doubled in the first quarter, costs for a plan in Kentucky were
well above premiums.
Coventry said it had ended up attracting more high-cost
members to the Kentucky Medicaid plan because it was offering a
broader network of hospitals and other health providers as well
as a prescription drug plan with no co-payment.
Shares of Coventry were down 11 percent at $29.09 in midday
trading on the New York Stock Exchange.
“I think people are reacting this way partly because it’s a
multiyear contract so they’re wondering how long this will be an
issue,” Wedbush Securities analyst Sarah James said.
Coventry, she said, also “is relatively new to Medicaid …
and they’re trying to grow rapidly in it so people are just
questioning how they approach bids.”
Shares of other insurers with Medicaid contracts in Kentucky
also fell. WellCare Health Plans was down 4.9 percent,
and Centene Corp declined 3.2 percent.
Coventry’s report comes the day after larger rival Aetna
Inc’s profit missed Wall Street’s target and said
healthcare-claim costs might be about to rise, sending its
shares tumbling.
The quarterly earnings of UnitedHealth Group Inc and
WellPoint Inc, the two biggest health insurers, exceeded
expectations, and both companies raised their outlooks for the
year.
Coventry said it affirmed its 2012 earnings outlook of its
forecast of $3.10 to $3.30 per share.
But after digesting Coventry’s report, several analysts said
the forecast suggested a steep reduction because it includes a
58-cent benefit recorded in the first quarter from releasing
reserves tied to a government audit of Medicare plans for older
people.
The analysts excluded the benefit from their projections.
“Accordingly, we calculate the full-year 2012 operating EPS
outlook at $2.52-$2.72, $0.58 lower than before,” Goldman Sachs
analyst Matthew Borsch said.
Analysts have been looking for $3.26 a share, according to
Thomson Reuters I/B/E/S.
Aetna shares fell 3 percent after Coventry’s report, while
Medicaid specialists Molina Healthcare and Amerigroup
were down 2.7 percent and 1.5 percent, respectively.
Coventry’s first-quarter net income rose to $170.7 million,
or $1.20 per share, from $110.2 million, or 73 cents per share,
a year earlier.
Excluding the Medicare reserve release, earnings of 62 cents
per share were a penny shy of the analysts’ average estimate,
according to Thomson Reuters I/B/E/S.
Revenue rose 21 percent to $3.69 billion, about $200 million
ahead of estimates. The company’s enrollment jumped about 16
percent to 5.26 million, as Medicaid enrollment nearly doubled
to 924,000.
Through Thursday, Coventry shares had risen more than 7
percent this year, less than the 12 percent climb for the Morgan
Stanley Healthcare Payor index of health insurers.
(Reporting By Lewis Krauskopf; Editing by Gerald E. McCormick,
Bernadette Baum and Lisa Von Ahn)
