Following the release of first quarter results on April 30, 2010, majority of the analysts covering Coventry Health Care Inc. (CVH) have made upward revisions to their 2010 and annual estimates. 2011 estimates have also witnessed an upward trend, although not as overwhelming as 2010 estimates.
The company performed impressively in the quarter, beating the Zacks Consensus Earnings Estimate by 17 cents and the year-ago earnings by 23 cents (excluding special items). Following the impressive first quarter results, the company raised the 2010 guidance for adjusted earnings as well as consolidated revenues.
Earnings Report Review
Coventry Health Care Inc.’s first quarter 2010 earnings of 49 cents per share — excluding the favorable impact of Medicare Advantage Private Fee-for-Service (MA-PFFS) results in the quarter — were above the Zacks Consensus Estimate of 32 cents. The Medicare offering stands discontinued from January 1, 2010.
On a reported basis, the company earned 66 cents per share as against the year-ago earnings of 26 cents (from continuing operations). Lower medical costs in the reported quarter also contributed to the improved performance by the insurer.
(Read our full coverage on this earnings report here: Coventry Tops Zacks Consensus)
Agreement of Analysts
13 of the 18 analysts following the stock have raised their earnings estimates for fiscal 2010 with no downward revisions over the last 30 days. 2011 estimates have also witnessed an upward bias, although not as overwhelming as 2010 estimates. In 2011, 5 of the 16 analysts covering the stock have revised their estimates upwards over the last 30 days, while two have moved in the opposite direction.
Coventry, which operates a diversified portfolio of local market health plans serving states primarily in the Mid-Atlantic, Midwest and Southeast regions, offers a wide range of products which should drive growth in the coming quarters.
The health plans operated by Coventry are generally located in small to mid-sized metropolitan areas. The markets served by the company are characterized by strict pricing discipline, improved provider arrangements, more effective medical management techniques and reduced overhead costs. Furthermore, the company has been very active with mergers and acquisitions, having completed multiple acquisitions since its inception, which have aided growth.
Magnitude of Estimate Revisions
The table indicates that fiscal 2010 estimates have risen by 8 cents over the last 30 days while fiscal 2011 estimates have witnessed a rise of 6 cents over the same period. This again highlights the positive outlook regarding the Bethesda, Maryland-based company.
Our Recommendation
Currently, we have a Neutral outlook on Coventry Health Care. While we are pleased with the diversified portfolio of local market health plans, we remain concerned about the fierce competition it faces.
Furthermore, even though the company relies on growth through acquisitions and has completed multiple deals over the past few years, such a strategy is always fraught with risks. Additionally, the dependence of the insurer on services of independent agents and brokers for marketing its products has inherent risks.
Our Neutral stance on Coventry indicates that the stock is expected to perform in line with the broader U.S. equity market over the next six to twelve months. We advise investors to retain the stock over this time period.
About Earnings Estimate Scorecard
Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education/
Read the full analyst report on “CVH”
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