PacifiCare Stock Suffers After Poor Prognosis

PacifiCare Health Systems Inc. shares tumbled 14% Tuesday after the nation’s largest operator of Medicare health-maintenance organizations told some analysts that second-quarter earnings will fall short of forecasts.

PacifiCare’s Class B shares fell $11.63 to $74 in trading of 1.8 million, almost four times the three-month daily average. It was the biggest one-day percentage decline since Nov. 25, 1997.

The Santa Ana-based company expects to report second-quarter earnings of $1.45 to $1.50 a share, missing the $1.58-a-share average estimate of analysts surveyed by First Call Corp., company spokesman David Erickson said in an interview.

The company disclosed that estimate recently to several analysts who had projected higher earnings. He declined to discuss why those forecasts were off, saying different analysts had different problems with their models of PacifiCare’s results.

“Investors are unsure what the extent of the shortfall will be and if this is just the first step in a series of downward revisions,” said Peter Costa, an analyst with ABN Amro who has a “hold” recommendation on PacifiCare shares.

The stock decline came just a week after a dozen company executives and board members filed a disclosure stating that they sold more than $12 million in shares last month, the bulk of which were option-related. PacifiCare shares hit a record high of $100.38 on May 5 after the company said it expected earnings to grow 40% to 45% this year.

The company said those shares represented only a small portion of the stock held by the executives and that they sold them during a one-month selling window that opened two days after the first-quarter earnings release.

Among the biggest sellers, Vice Chairman Terry Hartshorn sold 25,000 shares for $2.3 million. Patrick Feyen, president of the company’s HMOs in Texas and Oklahoma, sold 24,450 shares for about $2.2 million.

Richard Badger, who runs PacifiCare’s businesses in Arizona, Nevada and Asia, sold $1.6 million in shares. Christopher Wing, vice president for the Northwest region, sold $1.45 million in shares.

PacifiCare President and Chief Operating Officer Jeffrey Folick sold $1.3 million in stock. Chairman and Chief Executive Alan Hoops sold about $668,000 in shares.

Investors and analysts were angered that the company chose to disclose its new earnings estimates to only a few analysts. That meant that investors who weren’t privy to the information discussed in those conversations didn’t know why the shares were falling.