PacifiCare’s Stock Tumbles as Profit Projections Are Cut
PacifiCare Health Systems Inc.’s stock slumped Monday after the managed care company said delays in its planned buyout of rival FHP International Corp. forced it to shave its profit projections for this year.
The HMO’s common stock retreated $4.75 a share in Nasdaq trading to close at $75.75, despite PacifiCare’s otherwise favorable report that earnings for its first fiscal quarter exceeded analysts’ projections.
Officials told analysts that, for every week regulators delay, the company loses $2 million to $3 million in expected savings as a merged entity. The company originally told investors the deal would be wrapped up by the end of last year, but said Monday it now hopes to complete the FHP acquisition by the middle of this month. Analysts said they wonder, however, if even that is optimistic.
Analyst Ken Laudan, citing the delays, said he’ll probably pare back earnings estimates for the company this year. As is the case with other HMOs, PacifiCare’s increasing expenditures for drugs remain a concern, said Laudan, an analyst with Hambrecht & Quist.
PacifiCare also predicted earlier that its growth in revenue and membership this year will likely be hampered as it pushes ahead with plans to boost premiums, despite resistance from some corporate employers.
The company’s proposed FHP buyout recently cleared both state and federal antitrust regulators.
It now awaits approval by the state’s Department of Corporations, which regulates HMOs and held hearings on the deal in Irvine and San Diego last week. A department spokesman said Monday he didn’t know whether the agency is any closer to making a decision now than it was before the hearings.
The deal must also pass regulatory hurdles in Texas--a process that could be completed this week, a company spokesman said.
PacifiCare reported that earnings for the three months ended Dec. 31 rose 14% to $32 million, or $1 a share, about 2 cents a share above most analysts’ projections. The company earned $28 million, or 88 cents a share, for the first quarter a year ago. Revenue rose 16% to $1.2 billion from $1.1 billion.
The company’s earnings growth for the quarter was average for the industry, said Gary Frazier, a Bear Stearns analyst. PacifiCare has outperformed the industry in the recent past with annual increases in the 15% to 20% range, he added, and said it still has its sights on similar growth in the future.
