Recently, Fitch Ratings affirmed the issuer default rating
Health Net Inc.
) at "BB+" and the ratings on its senior secured notes at "BB".
Additionally, the rating agency affirmed the insurer financial
strength rating (IFS) on the company's operating subsidiaries -
Health Net Of California Inc., Health Net of Arizona Inc. and
Health Net Plan of Oregon Inc. - at "BBB". All these ratings
carry a stable outlook.
The affirmation of Health Net's ratings was based on the small
market share of the company along with the impact of its modest
size and scale compared to its peers and high geographic
concentration. Further, the ratings take into account the
projection of comparatively stable earnings in the future and the
capitalization level of Health Net, which falls within the
category guidelines for median ratings.
The stable outlook indicates a low possibility of a rating
change in the near term. However, if Health Net maintains stable
and strong earnings over the long term, measured by an EBITDA
(earnings before interest, taxes, depreciation and amortization)
margin of more than 3%, return on capital in the range of 7%-9%
and lack of one-time charges, then Fitch may raise the IFS.
Additionally, if the company maintains the consolidated
risk-based capital ratio above 200% of the company action level
and debt-to-EBITDA at lower than 2.5x, or reserve development
does not become unfavorable, or Health Net expands globally as
well as increases its earnings and membership, the IFS can be
Alternatively, if Health Net witnesses weak or volatile
earnings over a sustained time period, commercial membership
could fall below expectations, or the risk-based capital falls
below 175% or debt-to-EBITDA rises above 3.0x, then the ratings
can be revised downward.
Health Net carries a Zacks Rank #2 (Buy). Other health
maintenance organizations worth considering are
Molina Healthcare Inc.
) - Zacks Rank #1 (Strong Buy),
) - Zacks Rank #2 (Buy) and
) - Zacks Rank #2 (Buy).
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