Coventry Health Care Inc. ( CVH )
reported third-quarter 2012 operating earnings per share of 78
cents, which surpassed the Zacks Consensus Estimate of 72 cents,
but was lower than the prior-year earnings of 83 cents. Coventry
reported net income of $105.3 million compared with $122.7 million
in the prior-year quarter.
Operating revenues in the reported quarter jumped 16% year over
year to $3.5 billion, at par with the Zacks Consensus Estimate.
Managed care premiums increased 18% year over year to $3.17
billion, while revenues from management services declined 2% to
Coventry's total operating expense expanded 18.5% year over year
to $3.30 billion. Additionally, medical costs, the major operating
expense component, increased to $2.67 billion from $2.19 billion in
the prior-year quarter.
Likewise, Coventry's selling, general and administrative
(SG&A) expenses increased to $521.0 million from $492.9 million
recorded a year ago, while depreciation and amortization (D&A)
expenses increased to $36.3 million from $33.0 million in the
year-ago quarter. However, cost of sales declined to $66.2 million
from $71.5 million in the third quarter of 2011.
Total membership witnessed a growth of 93,000 from the second
quarter of 2012 to 5,374,000 in the reported quarter.
Commercial Risk: The Commercial Risk
membership for the reported quarter was 1,489,000, down 30,000
members from the prior quarter. Commercial Risk Medical Loss Ratio
(MLR) in the reported quarter came in at 81.5%.
Medicare Advantage Coordinated Care Plans
(MA-CCP): Coventry reported MA-CCP membership of
256,000, showing an increase of 3,000 members from the second
quarter of 2012. The MA-CCP MLR came in at 83.1%.
Medicare Part D: Medicare Part D
membership stood at 1,545,000 at the end of the reported quarter,
up by 51,000 members from the prior quarter. The Medicare Part D
MLR in the quarter came in at 84.2%.
Medicaid: The Medicaid membership at
the end of the reported quarter stood at 998,000, which reflected
an increase of 66,000 members over the second quarter of 2012. The
Medicaid MLR in the quarter came in at 93.0%.
Balance Sheet and Capital Structure
Coventry ended the reported quarter with approximately $1.26
billion in cash and cash equivalents, down from $1.58 billion at
the end of 2011. Deployable cash at the parent company stood at
$850 million at the end of September 2012. Operating cash outflow
totaled $260.3 million at the end of the reported quarter.
As of September 30, 2012, Coventry had total assets of $8.71
billion and shareholders' equity of $4.63 billion. The company
exited the quarter with $1.59 billion in long-term debt, almost at
par with 2011 end.
Outlook for 2012
Coventry raised its 2012 earnings per share guidance to
$3.25-$3.30 from $3.10-$3.30. The new guidance includes 6 cents per
share associated with SG&A expenses related to the acquisition
by Aetna Inc. ( AET ).
Projection for risk revenue was reduced to $12.88-$12.98 billion
from $12.900-$13.065 billion, while the guidance for the management
services revenue was revised to $1.18-$1.19 billion from
The company also modified its consolidated revenue guidance
range to $14.06-$14.17 billion from $14.065-$14.265 billion.
Coventry's consolidated MLR will likely be in the 83.9%-84.3% band
against the previous guidance of 84.0%-84.7%.
Coventry anticipates the cost of sales expense to lie in the
range of $264-$268 million, up from the earlier projection of
$257-$263 million. The company also projects SG&A expenses to
be in the range of $2.09-$2.11 billion, D&A between $152
million and $153 million and interest expense in the range of
$99.0-$100.0 million in fiscal 2012.
Coventry's other income is projected between $105 million and
$115 million, while tax rate is estimated to be in the 37.7%-38.3%
range. Shares outstanding at year end are expected to be in the
range of 136.5-137.5 million.
Coventry's competitor, WellPoint Inc. ( WLP )
will report its third-quarter 2012 financial results before the
opening bell on November 7, 2012.
Another peer, UnitedHealth Group Inc. ( UNH )
reported its third quarter 2012 earnings of $1.50 per share,
significantly ahead of the Zacks Consensus Estimate of $1.31 per
share. Higher revenue across the board and strong enrollment
growth, partially offset by higher operating costs, were
responsible for the better-than-expected results. Also, share
repurchases boosted the bottom-line earnings.
Coventry carries a Zacks #2 Rank, which translates into a
short-term Buy rating.AETNA INC-NEW (AET): Free Stock Analysis ReportCOVENTRY HLTHCR (CVH): Free Stock Analysis
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