On Nov 22, Zacks Investment Research downgraded
Universal American Corp.
) to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
Earnings estimates for Universal American have witnessed a
decline owing to dismal third-quarter 2013 results, higher
financial leverage and reduced investment returns. The company
has delivered negative earnings surprises in 2 of the last 4
quarters, with a negative average of 66.6%.
Additionally, this specialty health and life insurer
underperformed the year-to-date S&P 500 index, which posted
growth of 25.9% against a negative return of 15.4% clocked by
On Nov 7, Universal American reported third-quarter operating
loss per share of 8 cents. Results deteriorated significantly
from the year-ago quarter earnings of 16 cents and the Zacks
Consensus Estimate of 7 cents.
While lower premiums, fees and net investment income pulled
down the top line, which reduced 5.3% over the prior-year
quarter, higher benefit expenses and deferred acquisition costs
led to an overall operating loss. Consequently, book value per
share and return on equity also suffered.
Universal American's attempts to focus primarily on Medicare
Advantage markets are far from showing any desired positive
results. Sluggish business renewals and lack of growth catalyst
for its health insurance and managed care products in the
intensely competitive healthcare industry further add to the
woes. Amid this, a weakening financial leverage that deteriorated
to 17.5% at the end of Sep 2013 from 14.5% at 2012-end are also
making investors jittery.
Following the earnings release, the Zacks Consensus Estimate
for 2013 plunged 67.6% to 12 cents per share in the last 30 days.
Moreover, the estimate for 2014 decreased 38.5% to 24 cents in
the last 30 days.
Meanwhile, the Most Accurate Estimate for Universal American's
2014 earnings stands at 23 cents a share, resulting in a negative
of 4.2%. Furthermore, no upward revision in estimates was
witnessed for both the years.
Other Insurers Worth a Look
We prefer to avoid Universal American for the time being.
However, investors interested in the insurance industry may
consider stocks like
StanCorp Financial Group Inc.
Hilltop Holdings Inc.
Hallmark Financial Services Inc.
). All these stocks carry a Zacks Rank #2 (Buy).
HALLMARK FINL (HALL): Free Stock Analysis
HILLTOP HLDGS (HTH): Free Stock Analysis
STANCORP FNL CP (SFG): Free Stock Analysis
UNIVL AMERICAN (UAM): Free Stock Analysis
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