Coventry Health Care, Inc. (CVH) reported fourth quarter fiscal 2009 earnings of 74 cents per share from continuing operations, which was above the Zacks Consensus Estimate of 56 cents. The company earned 55 cents from continuing operations in the year-ago quarter.

For fiscal 2009, Coventry earned $2.14 from continuing operations which was also above the Zacks Consensus Estimate of $2.03. The company earned $2.41 from continuing operations in fiscal 2008.

Total operating revenues for the quarter climbed to $3.43 billion from $2.98 billion in the comparable period. Managed care premiums rose 16.8% to $3.12 billion, while revenues from management services increased marginally to $306.6 million from $305.3 million in the year-ago quarter. Total membership came in at 5.27 million at the end of the fourth quarter, up from 4.62 million at the end of the same period last year.

For the quarter, Coventry reported continued growth in Medicare products. Medicare Coordinated Care Product (CCP) membership grew 36% from last year. Commercial group risk premium yields in the reported quarter climbed to $306.75 per member per month, up 5.9% from the year-ago quarter. As of Dec 31, 2009, Medicare Part D membership stood at 1.68 million, a rise of 752,000 members from the prior year.

Total operating expenses for the quarter came in at $3.24 billion, up 13.5% from the year ago quarter. Medical costs, the major operating expense component, rose to $2.56 billion from $2.24 billion last year. Health plan commercial group risk medical loss ratio (MLR) came in at 82.9% for the quarter. The Medicare Advantage MLR came in at 89.4% compared to 90.9% a year ago.

Coventry’s Medicare Advantage plans for the elderly had 515,000 members as of Dec 31, 2009 which reflected an increase of 135,000 members from the end of 2008. Medicare Advantage CCP membership came in at 186,000 which reflected an increase of 49,000 members from the prior year.

Coventry ended the quarter with approximately $1.42 billion cash and cash equivalents. Furthermore, Coventry exited the quarter with $1.59 billion in long-term debt. The company repaid of $110 million of debt during the quarter.

Outlook for 2010

For fiscal 2010, Coventry expects to earn between $2.10 and $2.25 on revenue between $10.86 billion and $11.37 billion, compared to $13.9 billion in 2009. The medical loss ratio (the proportion of premium revenue spent on providing medical care) is expected between 82.7% and 83.5% in 2010, compared to 85.4% in 2009. The Zacks Consensus Estimate for 2010 is $2.23.

Estimate Revisions Trend

For the next quarter, only 2 of the 9 analysts covering the stock raised earnings estimates over the last 30 days while none moved in the opposite direction. This means that majority of the analysts have not revised their earnings estimates. The lack of directional pressure for the next quarter justifies our short-term recommendation reflected by Zacks Rank #3 (Hold).

Furthermore, over the last 30 days, only 1 of the 18 analysts covering the stock raised estimates for full year 2010, while none moved in the opposite direction. Furthermore, the magnitude of the revision is negligible. The lack of strength as well as magnitude in the revision justifies our long-term recommendation of “Neutral” on the stock.

Read the full analyst report on “CVH”
Zacks Investment Research