High Expectations for 1st Quarter Buoy PacifiCare Health’s Stock 20%
Shares of PacifiCare Health Systems Inc. shot up 20% Monday as investors began boosting the stocks of managed-care companies that are expected to post strong first-quarter earnings.
The Santa Ana health care company won’t be releasing its results for a week, but Wall Street traders helped boost its stock price $9.69 a share. It closed at $59.38 Monday on the Nasdaq system. More than 917,000 shares traded hands, almost triple the average daily volume for the last three months.
Analysts agree that major health maintenance organizations are expected to benefit from commercial rate hikes and successful share repurchase programs. And some companies, like PacifiCare and Cigna Corp., are contenders to beat Wall Street’s projections.
“There is an expectation that the marquee names, the names people care about, will show strong operating fundamentals,” said PaineWebber Inc. analyst John Rex.
Quarterly profits at PacifiCare, the nation’s largest Medicare health maintenance organization, were pegged at $1.70 a share. Analysts appeared to agree that the company could beat those expectations, but they cautioned investors to consider carefully the quality of those earnings. Much of the upside could stem from the company’s larger-than-expected share repurchase program, they said.
“While the earnings per share will likely look quite strong, the question is when you peel this back, what will the net earnings look like,” Rex said.
First-quarter results are generally upbeat for the HMO sector since medical cost pressures traditionally don’t filter down to companies’ bottom lines until the second or third quarters of the year.
Managed-care companies have been battling over the last two years to recover from financial difficulties caused by rising medical costs, insufficient premium rates and heavier-than-expected Medicare funding cuts.
On Monday, shares of Oxford Health Plans Inc. closed at $16.31, up $1.81 a share. Humana Inc. shares gained 81 cents to close at $8.69 a share, and shares of Foundation Health Systems Inc. gained 75 cents to close at $10 a share.
Shares of Aetna Inc. and United Health Group gained slightly.
