PacifiCare Health Shares Post 35% Gain
PacifiCare Health Systems Inc. shares climbed 35% Wednesday, spurred by better-than-expected fourth-quarter earnings, a strong outlook for 2001 and a series of upgrades by analysts.
The Santa Ana company’s stock rose $8.75 to $33.50 in trading of 8.4 million, seven times the three-month daily average on the Nasdaq market.
PacifiCare, the nation’s largest provider of Medicare managed-care plans, said after the market closed Tuesday that its profit fell 82%, but still handily exceeded analysts’ estimates.
Chief Executive Howard Phanstiel said PacifiCare expects to earn $2.94 a share this year, with earnings-per-share growth of 15% to 20% in 2002.
Lehman Brothers Inc. analyst Lawrence Marsh raised his target price on the stock to $45 from $35 after the company issued its estimate.
In a conference call with investors and analysts, PacifiCare said a payment increase from Medicare would add $40 million to $50 million to earnings this year.
The company said it expects $179 million in additional revenue from Medicare after March 1, allowing it to better cover rising costs for medical care and prescription drugs.
PacifiCare said it will focus this year on leaving unprofitable markets, controlling medical costs and raising premiums for its health-maintenance organizations.
The company also said it intends to add a preferred-provider organization that would include services such as women’s health, offer supplemental coverage for Medicare customers dropped by Medicare HMOs and expand a unit that manages pharmacy benefits. The pharmacy unit could participate in a Medicare prescription-drug benefit plan if the U.S. Congress passes one, the company said.
Some analysts questioned the bullish projections
“I’m very skeptical,” said Kathleen Lamb, a fixed-income analyst at Credit Suisse First Boston Inc. “It’s a total about-face from what they had said. They probably don’t have the infrastructure to do what they want to do.”
Lamb said it will be difficult for PacifiCare to control costs and transform itself at the same time.
“They were saying two weeks ago they expected a tough year,” she said. “I think what they’re doing is very challenging.”
Bloomberg News and Reuters were used in compiling this report.
