HealthSpring (HS) analysts are getting more and more bullish even as the market is gripped with fear. Estimates moving higher, plus shares moving lower equals excellent valuations for this Zacks #1 Rank (Strong Buy).
Company Description
HealthSpring is a managed care organization focusing on Medicare plans in 11 states as well as Washington D.C. Additionally, the company has national and regional stand-alone Medicare prescription plans.
Beat and Raised
On Aug 2 HealthSpring reported a great quarter and along with an earnings surprise the company raised guidance. Premium revenue was up 80% to $1.4 billion. Medicare Advantage membership was up over 70%.
Net income was up 50% to $83.9 million. Earnings worked out to $1.23 per share, 31 cents ahead of the Zacks Consensus Estimate. HealthSpring has topped forecasts in each of the past 8 periods.
The company noted that negative trends that weighed on the bottom line in the first quarter were reversing, which led to the earnings surprise the higher guidance.
Estimates Up
Analysts raised their outlook on the news, moving the 2011 full-year consensus 43 cents higher, to $4.13. Next year’s average estimate is up 20 cents, to $4.31.
Given EPS of $3.39 in 2010 the projected growth rates are now 22$ and 4.5% respectively.
Valuations
Healthcare is not the sexiest industry, then pile on political risk in regards to adjustments to Medicare and you can see why many have been avoiding HS. But, with shares trading with single-digit P/Es and 0.9 PEG ratio and it may be time to give them a serious look.
The Chart
While the market has given us plenty to worry about, none of that is showing up in the earnings outlook for HealthSpring. However, the price has taken a big hit. Look at the divergence between the earnings and the stock price. If earnings hold up it is only a matter of time before shares move much higher.
Bill Wilton is the Aggressive Growth Stock Strategist for Zacks.com. He is also the Editor in charge of the Zacks Small Cap Trader service
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