On Feb 28, Zacks Investment Research downgraded eHealth Inc. ( EHTH ) by a notch to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
eHealth has been experiencing declining earnings estimates on account of soft market reaction attributable to increased spending, anticipated risks from the implementation of health reforms and the absence lack of any near-term growth catalyst.
Additionally, this private health insurer underperformed the year-to-date Nasdaq index, which posted a growth of 3.4% against eHealth's negative return of 0.3%. Furthermore, the company delivered negative earnings surprises in 3 of the last 4 quarters with an average beat of -30%.
On Feb 20, eHealthreported fourth-quarter 2013 operating loss per share of 1 penny, which lagged the Zacks Consensus Estimate of earnings of 1 cent and plunged from the prior-year quarter earnings of 18 cents.
The decline was primarily driven by a 38.5% year-over-year hike in total operating and other expense, which more than offset the 19.6% jump in top line, overall generating a loss.
Consequently, operating cash flow decreased 16.1%, reducing the cash position as well. Depreciated assets and equity may also weaken capital position and raise risks on healthy capital deployment going ahead.
Predictions of tepid growth have pulled down the Zacks Consensus Estimate in 2014 by 62.1% to 22 cents a share in the last 7 days. Meanwhile, the same for 2015 plunged 46.7% to 49 cents per share over the same period.
Meanwhile, the Most Accurate Estimate for eHealth's 2014 earnings stands at 15 cents a share, resulting in an Earnings ESP of -31.8%. No upward revision in estimates was witnessed for both the periods.
Other Stocks to Consider
While we prefer to avoid eHealthfor the time being, some better-ranked insurers in the industry are Cninsure Inc. ( CISG ), Hannover R ( HVRRY ) and Marsh & McLennan Companies, Inc. ( MMC ). All these stocks carry a Zacks Rank #2 (Buy).