On Dec 25, 2013, Zacks Investment Research downgraded
Magellan Health Services Inc.
) to a Zacks Rank #5 (Strong Sell) from a Zacks Rank #3
Why the Downgrade?
Magellan Health has been experiencing declining earnings
estimates on the back of deteriorated third-quarter 2013 results
and a faltering guidance for 2014. Additionally, this specialty
healthcare insurer underperformed the one-year Nasdaq index,
which posed a growth of 37.9% against Magellan Health's
On Oct 24, Magellan Health reported third-quarter 2013
operating earnings per share of $1.70, which beat the Zacks
Consensus Estimate of $1.01. However, earnings declined 28% from
the prior-year quarter figure of $2.36.
Top-line growth of 9.4% year over year was more than offset by
11.7% hike in total expenses. Even segment profit declined 14.7%,
resulting in a deteriorated bottom line and operating cash
Furthermore, management expects operating earnings per share
of $2.00−2.56 in 2014, noticeably lower than that of $4.28−4.93
projected in 2013. Moreover, revenues are expected within
$3.61−3.80 billion in 2014 against $3.5−$3.7 billion guided in
Given the uncertainty related to the healthcare reforms and
increasing expenses vis-à-vis very nominal top-line growth, we
believe Magellan Health's target of achieving long-term
compounded annual growth of 20%, in both revenue and earnings per
share, appears delusionary.
Meanwhile, the Zacks Consensus Estimate for 2013 dipped 0.8%
to $4.70 per share in the last 60 days. More significantly, the
same for 2014 plunged 22% to $2.56 during the same period. Even
on a year-over-year basis, the earnings per share for 2014 are
projected to decline by 45.5%. No upward revision in
estimates was witnessed for both the years.
Other Stocks to Consider
While we prefer to avoid Magellan Health for the time being,
some better-ranked insurers in the industry are
HCI Group Inc.
The Hanover Insurance Group Inc.
). All these stocks sport a Zacks Rank #1 (Strong Buy).
CHUBB CORP (CB): Free Stock Analysis Report
HCI GROUP INC (HCI): Free Stock Analysis
MAGELLAN HLTH (MGLN): Free Stock Analysis
HANOVER INSURAN (THG): Free Stock Analysis
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