Healthy Profit Forecast Boosts PacifiCare Stock
PacifiCare Health Systems Inc., in the midst of a massive turnaround effort, said Thursday its earnings for the first quarter and the full year should reach the high end of a wide range of analysts’ expectations.
Wall Street pushed up the managed-care provider’s stock price 9% to $26.06 a share, up $2.13. The price had jumped 13% during Nasdaq trading before settling.
The Santa Ana company, which operates the nation’s largest Medicare HMO, said it expects per-share earnings of 35 cents in the first quarter and $2.94 in 2001. It also reported a stronger cash position.
The outlook is essentially the same that management issued two months ago when it released better-than-expected fourth-quarter earnings and received a series of upgrades from industry analysts.
Recent industry estimates, however, have ranged from a quarterly loss of 60 cents a share to a profit of 36 cents a share, according to a Thomson Financial/First Call survey of 14 analysts.
For the full year, their forecasts range from a loss of $2.18 a share to a profit of $3 a share. Consensus estimates were 27 cents and $2.28 a share for the quarter and the year, respectively.
The company restated its outlook in a news release in conjunction with its annual investor conference Thursday.
PacifiCare has been posting sluggish earnings growth as it battles high medical costs caused by a big change in its business strategy. Under the new strategy, the company is switching the way it pays doctors and hospitals from fixed monthly payments contracts to shared-risk arrangements.
Fixed payments, a conventional managed care cost-saving tool, are more predictable because they are predetermined and not based on the cost of a patient’s care.
Analysts have differed greatly on whether PacifiCare’s strategy will be a success in the near term.
“Even with an upbeat management presentation, we would expect to remain cautious on PacifiCare stock until visibility improves with respect to the company’s true underlying medical cost trend and until PacifiCare is able to achieve a sustained turnaround,” Lori Price, an analyst at J.P. Morgan Chase, said in a research note this week.
Analysts have such a wide range of estimates because PacifiCare had an abrupt earnings miss last year and an apparently fast comeback, said Peter Costa, an analyst at ABN-AMRO.
“It leaves people a little unsure of what exactly their numbers are going to be,” said Costa, whose earnings estimates are at the high end of the analysts’ range at 35 cents a share for the first quarter and $2.95 for the year.
Still, he said he has a hold rating on the stock because of risks associated with its strategies.
“It’s a good management team that has a difficult situation to fix,” Costa said. “PacifiCare is going through a number of changes. . . . It’s going to take a long time to fix their problems.”
PacifiCare also said Thursday its daily balance of free cash averaged $186 million during March, which helps position the company to resume repayment of outstanding debt in the second quarter, Chief Financial Officer Gregory Scott said in a written statement. The company said it had $133 million of free cash as of Feb. 1.
Through February, membership in the company’s Medicare health maintenance organization program totaled 1.05 million, down 1% from Dec. 31, while commercial membership was 2.73 million, off 7.5% from year-end. The company attributed the decline to its exit from some commercial and Medicare markets.
