Standard & Poor's Ratings Services ("S&P") reaffirmed
the long-term counterpart credit rating (CCR) of
Health Net Inc.
) at "BB," with a stable outlook. The rating agency also affirmed
the long-term CCR as well as the financial strength rating (FSR) of
"BBB-" for the company's subsidiaries - Health Net of California
Inc. and Health Net Life Insurance Co.
Additionally, S&P raised the long-term CCR and FSR of two
other Health Net subsidiaries - Health Net of Arizona Inc. and
Health Net Health Plan of Oregon Inc. - to "BBB-" from "BB+." The
rating agency also maintained a stable outlook on all the ratings,
which indicates low possibility of a rating change within a year.
However, any significant weakening of the financials or a
substantial non-operating expense could lead to downward revision
of the ratings.
The strong ratings reflect Health Net's profitable business mix
as well as strong risk profile, which offset concerns related to
the limited geographic expansion and product portfolio. The
company's current non-risk to risk business ratio stands at
Moreover, Health Net's operating efficiency leads to steady
income as well as strong cash flows. Additionally, the TRICARE
contract facilitates strong cash flow generation, while the
earnings before interest, taxes, depreciation and amortization
(EBITDA) coverage, interest coverage and fixed charge coverage
ratios remain impressive. The strong ratios and cash flows support
the retention of the CCR assigned to the company.
Currently, the Zacks Consensus Estimate for Health Net's
second-quarter 2012 earnings stands at 69 cents per share, down
9.5% year over year. 10 of the 13 estimates moved downward in the
last 30 days, while no upward revision was witnessed.
For 2012, the Zacks Consensus Estimate is pegged at $2.25 per
share, down 27% year over year. Health Net competes with
UnitedHealth Group Inc.
Currently, Health Net carries a Zacks #4 Rank (short-term Sell
rating), implying a slight downward pressure on the shares in the
near term. Considering the fundamentals, we are also maintaining
our long-term Neutral recommendation on the stock.
HEALTH NET INC (HNT): Free Stock Analysis
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