Moody's Investor Service, the credit rating agency of
) has affirmed the ratings assigned to
Health Net Inc.
) debt instruments and its operating company, Health Net of
California, Inc. The senior notes were assigned a "Ba3" while
Health Net of California was given "Baa3" insurance financial
strength (IFS) rating. Alongside, the outlook on the ratings was
revised up to positive from stable.
The upward revision in the outlook came on the back of Health
Net's impressive earnings growth for the last 12 months and an
improved financial performance. Health Net has taken part in the
individual; health exchanges, Medicaid expansion and
dual-eligibles pilot program in California. As per Moody's these
initiatives create growth opportunities for Health Net as it has
already been losing membership in one of its segment- the group
commercial segment. A healthy EBITDA margin also keeps the rating
agency affirmative in its ratings.
Nevertheless, Moody's is aware of the health risks associated
with Health Net's growth strategies for the next few quarters.
The main risk in this regard is that the new health care
exchanges are untested and thus might end up in poor enrollment
levels. Additionally, adverse selection by new insureds and the
potential financial impact from this business are some added
To deal with the risk associated with the California Medicaid
business and the new dual eligible program, Health Net and the
State of California's Department of Health Care Services (DHCS)
had inked a deal to cover all of Health Net's state-sponsored
programs, including any potential future Medicaid expansion under
federal health care reform.
As per Moody's, this is expected to provide the company with
more financial flexibility and predictability in the long run.
Also the huge membership base of the company including the
TRICARE members is expected to boost the credit profile of Health
Moody's stated that an upward revision in the ratings might take
place if EBITDA margin is maintained above 2%, membership growth
remains constant or increases or the debt-to-capital ratio is
below 35%. However in the near term, the outlook might be
downgraded if there is deterioration in the EBITDA margins,
membership or consolidated risk based capital (RBC) ratio.
Rating affirmations or upgrades from credit rating agencies
play an important part in retaining investor confidence in the
stock as well as maintaining creditworthiness in the market. We
believe that Health Net's present score with the credit rating
agency will help it write more business going forward.
Health Net currently carries a Zacks Rank #3 (Hold). Among
other healthcare companies,
) carry a Zacks rank #2 (Buy).
AETNA INC-NEW (AET): Free Stock Analysis
CENTENE CORP (CNC): Free Stock Analysis
HEALTH NET INC (HNT): Free Stock Analysis
MOODYS CORP (MCO): Free Stock Analysis Report
To read this article on Zacks.com click here.