Health Plan Earnings Preview: First Quarter 2008 Goes Down As Worst Single Quarter In 11 Years, Equities Analysts Say
For publicly traded health plans, first quarter 2008 will go down as the worst single quarter for stock performance in more than a decade.
Washington, DC (PRWEB) April 25, 2008
For publicly traded health plans, first quarter 2008 will go down as the worst single quarter for stock performance in more than a decade, equities analysts tell AIS's Health Plan Week. While the Standard & Poor's (S&P) 500 stock index is down 10% for the quarter, the managed care sector is off 35%. Go to http://www. aishealth. com/PressReleases/PR2008_0423_hpw. pdf (http://www. aishealth. com/PressReleases/PR2008_0423_hpw. pdf) for more details.
On April 22, Health Plan Week issued a special alert after UnitedHealth Group announced that it is lowering its full-year 2008 earnings outlook by 10%. Other health plans are expected to follow suit with negative earnings revisions for the remainder of 2008. The anticipated revisions, analysts say, reflect expectations of a higher commercial medical loss ratio and reduction in investment income (due to recent interest-rate cuts).
Aaron Vaughn, a securities analyst in the St. Louis office of Edward Jones, says health plan stocks are trading at "historic lows" relative to their price-to-earnings (P/E) ratios.
The next worst quarter was the fourth quarter of 1997, "when the sector underperformed the S&P 500 by 22.6%," adds Stifel Nicolaus equities analyst Tom Carroll. Back then, he tells AIS's Health Plan Week, there was an abundance of managed care companies, and they competed largely on price to improve market share. While investors rewarded firms that successfully grew membership, some health plans reduced prices at their own peril, and ultimately failed in that strategy because premium revenue wasn't enough to cover medical costs, he says.
More Plans May Cut Forecasts
Much of the first-quarter deterioration, however, didn't occur until March 10, when WellPoint, Inc. shocked investors by lowering its full-year 2008 earnings per share expectations. Humana Inc. followed the next day with its own revision, citing different reasons. While Aetna Inc. and CIGNA Corp. responded to those revisions by reaffirming earnings forecasts, UnitedHealth Group, Health Net, Inc. and Coventry Health Care, Inc. have since released statements that fell short of reaffirming earlier forecasts.
This article has been excerpted from AIS's Health Plan Week. To read the story in its entirety, including the table: Year-to-Date Stock Price Loss or Gain and Price-to-Earnings Ratios as of Last Trading Day of March 2006 to 2008, visit http://www. aishealth. com/PressReleases/PR2008_0423_hpw. pdf (http://www. aishealth. com/PressReleases/PR2008_0423_hpw. pdf).
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