We have reiterated our Neutral recommendation on
Coventry Health Care Inc. ( CVH )
based on the fluctuations in operating cash flow and high
competition, which are expected to weigh on the positives. This
managed healthcare company carries a Zacks #3 Rank (Hold).
The Zacks Consensus Estimate for Coventry's fourth quarter 2012
remained stable at 67 cents per share over the past 30 days due to
the lack of any estimate revision. This estimate reflects a 15.5%
increase over the fourth quarter of 2011.
Even the 2012 estimate was not revised by any analyst during the
past 30 days. Consequently, the Zacks Consensus Estimate for 2012
stands at $2.80 per share, down 2.5% over 2011. This estimate lies
below Coventry's earnings per share guidance of $3.25-$3.30.
The company had raised its 2012 earnings guidance from
$3.10-$3.30 during its third-quarter earnings release on October
26, 2012. Coventry 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
The operating cash flow of Coventry remains unstable, which
could weigh on the capital and financial leverage. Additionally,
the company has to compete with peers that have competitive
advantages such as broader geographical coverage, greater market
share, lower costs and greater resources. These can negatively
impact Coventry's membership and earnings.
However, these negatives are mitigated by various positives.
Coventry's takeover by Aetna Inc. ( AET ),
scheduled to close by mid-2013, will allow the company to cater to
a larger market and open avenues for future partnerships to improve
the quality and affordability of its services.
Moreover, with no debt repayment scheduled in the next couple of
years and deployable cash of about $850 million at the end of
September 2012, the company has ample scope for strategic
acquisitions as well as share repurchases and dividend payouts.
Other Stocks to Consider
While we maintain a cautious stance on Coventry, other health
care plan providers such as Health Net Inc. ( HNT )
and Molina Inc. ( MOH )
are worth considering. Both these stocks carry a Zacks #2 Rank
(Buy).AETNA INC-NEW (AET): Free Stock Analysis ReportCOVENTRY HLTHCR (CVH): Free Stock Analysis
ReportHEALTH NET INC (HNT): Free Stock Analysis
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