Thanks to the Affordable Care Act, 2013 has been a pretty rocky
year for the health care market. While some segments, such as
biotechnology and drug producers, weathered the storm and appear to
be well-positioned heading into the coming year, HMO firms are on
These health providers have also seen strength in their share
prices over the course of the year, but could be in trouble as the
calendar turns over. That is because intense competition, worries
over taxes, and declining margins are starting to hamper the
outlook for at least a few firms in this space. While this has been
an industry wide trend to an extent, it has been especially
apparent in the case of
Magellan Health Services (
MGLN in Focus
Magellan manages benefits in three key areas; behavioral health,
radiology, and pharmacy, and it has been pretty strong in 2013. The
stock has risen by nearly 20% in the YTD time frame, but over the
past month, the stock has flat-lined, and could be facing some
trouble as we approach 2014.
That is because MGLN recently warned on its guidance for the coming
year, slashing profits but keeping revenues in-line with analyst
expectations. So, while revenues look to be stable, margins could
be tumbling for MGLN, especially if the company is hit by new ACA
related taxes, and is unable to pass these costs on to customers.
Now, MGLN expects 2014
earnings to be between $2 and $2.56/share
, on revenue of between $3.61 billion- $3.80 billion. This compares
to analyst expectations of $3.27/share on revenues of $3.41
billion, implying a pretty drastic cut in expectations by MGLN
Due to this huge cut, analysts in the Zacks Consensus have been
slashing estimates for all time periods studied, with not a single
estimate going higher in the past two months. And with these
reduced estimates, MGLN is now looking to have a growth rate next
year of -44% for earnings, so it could be a very rough period for
the company in the next few months.
Unsurprisingly given these sobering statistics, MGLN has fallen to
a Zacks Rank #5 (Strong Sell), meaning that we are looking for some
underperforming over the first quarter of 2014, especially if
estimates continue to tumble for Magellan.
Medical HMO industry
is looking quite poor from a Zacks Industry Rank as well, coming in
the bottom 10%. Not a single company has a Rank better than a 3,
meaning there isn't a single buy candidate in the dozen names in
this space right now.
Instead, if you are seeking a medical play, a look to the generic
drug market could be a better idea. Currently, three companies-
-have top Zacks Ranks, and beat in the most recent quarter as well.
So, consider any of these better Ranked plays instead of the HMO
space if you are searching for a solid way to play the medical
sector in 2014.
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