Health Net's Earnings Misses Est - Analyst Blog

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Health Net Inc. 's ( HNT ) first-quarter 2013 operating income, which comprises combined net earnings from the Western Region Operations and Government Contracts segments, came in at $8.2 million or 10 cents per share, rebounding from the year-ago loss of $8.1 million or 10 cents per share. Operating income, however, lagged the Zacks Consensus Estimate of 41 cents per share.

Health Net reported net income of $50.1 million or 62 cents per share in the first quarter of 2013, improving considerably from a loss of $26.6 million or 32 cents per share in the year-ago quarter.

Health Net's total revenue declined 1.2% year over year to $2.8 billion in the reported quarter. Revenues came in line with the Zacks Consensus Estimate.


Health plan services premiums revenues of Health Net came in at $2.6 billion, in line with the first quarter of 2012. Meanwhile, total health plan services expenses declined 3.2% to $2.27 billion from $2.34 billion in the year-ago quarter. Total expenses declined 4.5% year over year to $2.72 billion from $2.84 billion.

Segment Performance

Western Region Operations: This segment of Health Net posted revenues of $2.7 billion in the quarter, in line with the year-ago quarter. Net investment income for the segment increased to $29.6 million from $22.3 million in the year-ago quarter. Health plan services expenses declined 3.4% year over year to $2.3 billion.

Total enrollment in the segment declined 2.8% year over year to 2.5 million members as of Mar 31, 2013. Western Region commercial enrollment dipped 11.2% to 1.1 million members, while enrollment in the company's Calif. health plans declined 1.5% year over year. However, enrollment climbed 3.1% to 0.23 million in Medicare Advantage plans. Medicaid enrollment also increased 6.4% to 1.1 million in the reported quarter.

Medical care ratio (MCR) for Health Net's health plan services in the segment improved to 86.2% during the reported quarter from 89.6% in the year-ago quarter and Commercial MCR declined to 85.9% from 91.4% in the prior-year quarter. Medicare Advantage MCR deteriorated to 91.9% from 87.9% in the year-ago quarter.

Government Contracts: Revenues from this segment of Health Net declined to $134.5 million from $181.4 million in the first quarter of 2012. The segment's expenses also plummeted to $125.5 million from $159.3 million in the prior-year quarter.

Financial Update

As of Mar 31, 2013, Health Net had cash and investments of approximately $2.0 billion, increasing from $2.2 billion as of Dec 31, 2012. The company's debt-to-total capital ratio also inched up to 24.6% from 24.3% as of Dec 31, 2012.

Health Net's operating cash outflow stood at $28.2 million in the reported quarter compared with an inflow of $4.2 million in the year-ago quarter.

Total assets of Health Net were worth $3.88 billion as of Mar 31, 2013, declining from $3.93 billion as of Dec 31, 2012. Stockholder equity increased to $1.53 billion from $1.56 billion as of Dec 31, 2012.

Share Repurchase Update

During the reported quarter, Health Net repurchased 2.7 million shares at an average price of $26.34, totaling $70 million. The company had $280 million remaining under its current $400 million share repurchase authorization as of Mar 31, 2013.

Outlook for 2013

Health Net raised its reported net income guidance for 2013 to $2.20-$2.30 per share from $2.00-$2.10 per share.

Health Net estimates total health plan membership in the Western Region Operations in 2013 to dip 1%−2% over 2012. The expected decline is primarily due to an 8%−9% estimated downturn in commercial enrollment, partially offset by a 1%−2% anticipated improvement in the Medicare Advantage enrollment and a 4%−6% rise predicted in Medicaid enrollment.

Additionally, consolidated revenues for the combined Western Region Operations and Government Contracts segments are expected between $10.7 billion and $11.2 billion.

Moreover, the commercial premium yields per member per month (PMPM) for the Western Region Operations segment in 2013 is projected to grow 2.0% year over year.

Meanwhile, the tax rate for Health Net is expected to be 38%−39%. The company also expects selling cost ratio in the range of 2.3%−2.4% and general and administrative expense ratio in the range of 9.0%−9.4%.

Outstanding share count is expected to be around 80 million at the end of 2013. The above mentioned guidance includes operating expenses of $30 million related to the implementation of the health care reform but excludes costs related to Health Net's participation in Calif.'s Coordinated Care Initiative.

Other Healthcare Companies

Another health maintenance organization (HMO), WellPoint Inc. ( WLP ) reported first-quarter 2013 adjusted income of $2.94 per share, beating the Zacks Consensus Estimate of $2.37. Adjusted income also surpassed the year-ago earnings of $2.34 per share by 25.6%.

UnitedHealth Group Inc. ( UNH ) reported first-quarter 2013 earnings of $1.16 per share, in line with the Zacks Consensus Estimate. Earnings, however, declined 11.4% on a year-over-year basis.

Molina Healthcare Inc. ( MOH ) reported first-quarter 2013 net earnings per share of 64 cents, significantly surpassing the Zacks Consensus Estimate of 26 cents.

Zacks Rank

Health Net carries a Zacks Rank #2 (Buy).



HEALTH NET INC (HNT): Free Stock Analysis Report

MOLINA HLTHCR (MOH): Free Stock Analysis Report

UNITEDHEALTH GP (UNH): Free Stock Analysis Report

WELLPOINT INC (WLP): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: HNT , MCR , MOH , UNH , WLP

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