Coventry Health Care Inc.
) reported first-quarter 2012 operating earnings per share of 62
cents, which lagged the Zacks Consensus Estimate by a penny and was
also lower than the prior-year earnings of 66 cents. Operating
income amounted to $88.3 million in the reported quarter.
The decline was primarily attributable to increased expenses
coupled with a decline in membership in Commercial Group Risk that
marred the desired upside in the top line. However, revenue showed
impressive growth, partially offsetting the increase in
The earnings per share for the reported quarter exclude the
favorable impact of 58 cents related to the release of Medicare
Advantage Risk Adjustment Data Validation (RADV) audit reserves,
while the prior-year quarter's results exclude earnings of 8 cents
per share related to the Medicare Advantage Private Fee-for-Service
(MA-PFFS). Including the impact of the non-recurring items,
Coventry reported net income of $170.7 million or $1.20 per share
in the reported quarter, compared with $110.2 million or 74 cents
per share in the prior-year quarter.
Operating revenues in the reported quarter surged 21% year over
year to $3.7 billion, surpassing the Zacks Consensus Estimate of
$3.47 billion. Managed care premiums increased 22.8% year over year
to $3.39 billion, while revenues from management services climbed
4.1% to $305.7 million.
Coventry witnessed year-over-year growth of 18.7% in total
operating expense to $3.42 billion. Additionally, medical costs,
the major operating expense component, increased to $2.81 billion
from $2.28 billion in the prior-year quarter.
Likewise, Coventry's selling, general and administrative (SG&A)
expenses increased to $502.9 million from $498.6 million a year
ago, while cost of sales remained unchanged at $68 million.
Depreciation and amortization (D&A) expenses increased
marginally to $36.3 million from $35.8 million in the year-ago
Total membership witnessed a growth of 497,000 from the fourth
quarter of 2011 to 5,262,000 in the reported quarter. Membership
growth was driven by higher enrollment in Medicare Advantage,
Medicare Part D and Medicaid products.
Commercial Group Risk:
The Commercial Risk membership for the reported quarter was
1,549,000, down 87,000 members from the prior-year quarter.
Commercial Risk Medical Loss Ratio (
) in the reported quarter came in at 79.9%.
Medicare Advantage Coordinated Care Plans (MA-CCP):
Coventry reported MA-CCP membership of 250,000, showing an increase
of 31,000 members from the first quarter of 2011. The MA-CCP MLR
came in at 74.1%.
Medicare Part D:
Medicare Part D membership stood at 1,458,000 at the end of the
reported quarter, up by 299,000 members over the prior-year
quarter. The Medicare Part D MLR in the quarter came in at 94.9%,
against 95.8% in the prior-year quarter.
The Medicaid membership at the end of the reported quarter stood at
924,000, which reflected an increase of 456,000 members over the
first quarter of 2011. The Medicaid MLR in the quarter came in at
Balance Sheet and Capital Structure
Coventry ended the reported quarter with approximately $1.74
billion in cash and cash equivalents, up from $1.58 billion at the
end of 2011. Deployable cash at the parent company stood at $900
million at the end of March 2012. Operating cash flow totaled
$420.5 million at the end of the reported quarter.
As of March 31, 2012, Coventry had total assets of $9.02 billion
and shareholders' equity of $4.70 billion. The company exited the
reported quarter with $1.58 billion in long-term debt, almost at
par with 2011 end.
During the quarter under review, Coventry won various Medicaid
contracts. The state of Nebraska awarded a Medicaid managed care
contract to the company, which is due to begin in the third quarter
of 2012. The state of Missouri also renewed its Medicaid contract
with Coventry, which is set to commence on July 1, 2012.
Moreover, the Commonwealth of Pennsylvania HealthChoices
Medicaid program in the New West and New East zones sent Letters of
Intent to the company with a view to initiate their contracts on
September 1, 2012 and March 1, 2013, respectively.
Coventry initiated a quarterly cash dividend policy in the
reported quarter. Consequently, on April 9, 2012, the company paid
its first quarterly dividend of 12.5 cents per share to the
shareholders of record as of March 23, 2012.
Outlook for 2012
Coventry affirmed its 2012 earnings per share guidance of
$3.10-3.30. Projection for risk revenue was raised to
$12.875-13.050 billion from $12.75-12.90 billion, while the
guidance for the management services revenue was increased to
$1.145-1.180 billion from $1.11-1.15 billion.
The company also increased its consolidated revenue guidance range
to $14.020-14.230 billion from $13.86-14.05 billion. Coventry's
consolidated MLR is expected to be between 83.6% and 84.4% compared
with the previous guidance of 83.1% to 83.9%.
Coventry anticipates the cost of sales expense to lie in the range
of $251-257 million, up from the earlier projection of $231-237
million. The company also projects SG&A expenses to be in the
range of $2.09-2.13 billion, D&A between $138-142 million and
interest expense in the range of $99.0-101.0 million in fiscal
Coventry's other income is projected between $87 million and $93
million, while tax rate is estimated in the 37.7-38.3% range.
Shares outstanding at year end are expected to be in the range of
) reported first-quarter 2012 adjusted income of $2.34 per share,
surpassing the Zacks Consensus Estimate of $2.28 per share but a
penny lower than the year-ago earnings. Adjusted income declined
11% to $794.1 million from $891.0 million in the first quarter of
UnitedHealth Group Inc.
) declared first-quarter 2012 earnings of $1.31 per share,
substantially higher than the Zacks Consensus Estimate of
Coventry carries a Zacks #3 Rank, which translates into a
short-term 'Hold' rating.
COVENTRY HLTHCR (
): Free Stock Analysis Report
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