On Dec 19, Zacks Investment Research downgraded
Universal American Corp.
) to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
Universal American witnessed downward estimate revisions
following weak third-quarter 2013 results, which included a
negative surprise of 214.3%. Shares of this life-insurer lost
nearly 5.2% since the company reported soft results on Nov 7 and
given its expected negative earnings growth rates in the upcoming
quarters, we feel it has more downside left.
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 earnings of 7 cents.
The underperformance by Universal American was largely due to a
decline in its top-line along with an increase in expenses. Lower
premiums, fees and net investment income dragged the top line
reduced the top-line by5.3% year over year. On the other hand,
higher benefit expenses and deferred acquisition costs led to
increase in expenses that in turn led to an operating loss.
Universal American's Financial leverage deteriorated 300 basis
points to 17.5% at the end of Sep 2013 from 14.5% at 2012-level.
Book value per share and return on equity also suffered.
Universal American's attempts to focus primarily on Medicare
Advantage markets are yet to show 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.
Over the last 60 days, the Zacks Consensus Estimate for 2013
plunged 67.6% to 12 cents per share as all the estimates were
revised downwards. Moreover, the estimate for 2014 decreased
38.5% to 24 cents over the same period.
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.
American Equity Investment Life Holding Co.
Manulife Financial Corp.
). While StanCorp sports a Zacks Rank #1 (Strong Buy), both
American Equity and Manulife carry a Zacks Rank #2 (Buy).
AMER EQUITY INV (AEL): Free Stock Analysis
MANULIFE FINL (MFC): Free Stock Analysis
STANCORP FNL CP (SFG): Free Stock Analysis
UNIVL AMERICAN (UAM): Free Stock Analysis
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