FHP Stock Follows Earnings Report in Steep Drop : * Health care: Fountain Valley HMO’s shares are down 28% in heavy trading. Its competitors also take a hit in the market, confirming the industry slump.
FHP International Corp.’s stock plunged 28% in furious trading Thursday, and the stocks of other health maintenance organizations floundered after FHP blamed a weak Southern California economy for a sharp drop in earnings.
FHP said Thursday that it anticipates first-quarter earnings of between 18 cents and 20 cents per share, contrasted with 30 cents per share during the same quarter of 1990. Last quarter’s earnings were 42 cents per share.
FHP stock plunged as low as $11.25 in over-the-counter trading Thursday before rebounding to close at $12.75, down $4.875 per share, the biggest percentage loser on the National Assn. of Securities Dealers Automated Quotation system. About 2.8 million shares changed hands, or about 10 times the average daily volume, company officials said.
Skittish investors also sent the stock of PacifiCare Health Systems Inc. of Cypress plummeting $3.75 a share to close at $22.875. A third California HMO, Foundation Health Corp. of Rancho Cordova, slipped $1.625 to close at $23.
The sluggish earnings, though anticipated by many analysts, confirmed investor fears that Southern California’s health maintenance organizations are in a deep slump.
Analysts blamed the local economy, price wars among the HMOs and slim federal government payments for MediCare patients. Several warned that the industry is unlikely to recover soon.
“It has always been the most competitive market in the country, and I think the premium wars are heating up in Southern California,” said Vivian R. Wohl, an analyst with Robertson, Stephens & Co. in San Francisco. “It’s escalating . . . and I think the impact will be felt next year.”
FHP has 642,000 members in four western states and Guam, 349,000 of them in California.
“As California goes, so goes our business,” said Wescott W. Price III, FHP’s president and chief executive. He blamed “a combination of companies that are laying off employees, and some we have had to cancel because they haven’t paid us when they should.
“We’re not seeing this going on in our other regions,” Price added. In Arizona, for example, the company is doing “very well,” he said. FHP expects to release its first-quarter results in about two weeks.
FHP said enrollment growth in California has also been slowed not only by high unemployment and layoffs, but also by tough competition in signing up senior citizens. Profits were also squeezed because the federal government increased the reimbursement rate for seniors by only 1.6% in 1991, the company said. However, a 5% rate hike that takes effect Jan. 1 should improve the financial picture next year, it said.
Other analysts said the market for the larger California HMOs has peaked.
“The major HMOs experienced tremendous growth from displacing the major insurance companies, but within the last 18 months that process has probably largely been completed,” said Michael M. LeConey of Baird, Patrick & Co. in New York. “So the ability to gain and grow from now on will be swiping business from another HMO, which is a lot tougher.”
