We have retained our Neutral recommendation on
Health Net Inc.
) as the declining membership and deteriorating Government
Contracts segment results are expected to weigh on the positives
of the company. This managed healthcare company carries a Zacks
Rank #3 (Hold).
We remain concerned with the rate of customer attrition in
Health Net's health plans in the recent years. Revenues from the
Government Contract segment have also been declining due to
changes in the TRICARE and Military and Family Life Consultant
Nevertheless, Health Net had a strong capital and liquidity
position with total cash and investments of approximately $2.0
billion at the end of Sep 2012. Additionally, the investment
portfolio of the company is strong, with an average rating of
"A+" and "A1" as per Standard & Poor's and Moody's Investor
Moreover, Health Net's total expenses have been declining
since 2010. Lower expenses can significantly improve the
company's margins as well as bottom-line results. Further, the
company has been slowly disposing of its non-profitable
businesses to improve its bottom line.
Health Net's third-quarter 2012 operating income, which
includes combined net earnings from the Western Region and
Government Contracts segments, came in at 38 cents per share,
declining substantially from the year-ago level of 84 cents per
share. The company expects operating earnings per share between
$1.00 and $1.10 in 2012. The Zacks Consensus Estimate of $1.04
per share lies within this guidance range.
The company is scheduled to release its fourth quarter and
full year 2012 financial results before the opening bell on Jan
30, 2013. The Zacks Consensus Estimate for fourth quarter stands
at 37 cents per share, down 61% year-over-year.
Other Stock to Consider
Although we have a cautious stance on Health Net, other stocks
American Caresource Holdings, Inc.
Molina Healthcare, Inc.
), both carrying a Zacks Rank #2 (Buy), are worth
AMER CARESOURCE (ANCI): Free Stock Analysis
HEALTH NET INC (HNT): Free Stock Analysis
MOODYS CORP (MCO): Free Stock Analysis Report
MOLINA HLTHCR (MOH): Free Stock Analysis
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