PacifiCare Stock Soars 34% on Analyst’s Upgrade
Shares of PacifiCare Health Systems Inc., the biggest U.S. operator of Medicare health plans, surged 34% Tuesday after a Lehman Brothers Inc. analyst raised his rating on the stock.
The Santa Ana company’s stock rose $5.94 to $23.25 in Nasdaq trading. The shares have moved up 55% so far this year, but remain far below their 52-week high of $72.31 in June.
Lehman analyst Lawrence Marsh raised the stock to “buy” from “market perform.” Marsh raised his 12-month target price to $35 from $20 a share.
Marsh said in a report that he expects PacifiCare earnings to reach $2.30 a share this year after payments to Medicare health-maintenance organizations increase March 1. The increase is part of a budget package that boosted funding to the government health-insurance program for the elderly.
Marsh raised his profit projection from $2 a share for the year, the highest estimate in an analysts’ survey by First Call/Thomson Financial. The average was 79 cents a share.
PacifiCare has about 4 million customers, including about 1 million in plans that cover Medicare members.
Although the company may get a big earnings boost from increased Medicare HMO payments, PacifiCare “has a lot of other problems,” said Sheryl Skolnick, an analyst for Robertson Stephens.
It’s having a tough time figuring out how much to charge employers and how much to pay providers, she said.
For Skolnick, hospitals represent a more attractive investment than HMOs, because HMOs are losing their ability to control prices and their outlook is not as clear. Plus, HMOs are ‘very economically dependent,’ she noted.
Of the hospital stocks, Skolnick particularly likes Tenet Healthcare Corp. It services markets where managed care is weakest, she said, and its revenue is growing nicely. Plus, its margins are expanding faster than the revenue, she said.
PacifiCare said Tuesday that it has named Gregory W. Scott as chief financial officer. He replaces Howard Phanstiel, who became chief executive in December.
Scott, 47, is former chief operating officer and CFO at Medsite.com Inc., a New York-based Internet provider for physicians.
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Bloomberg News and Dow Jones Newswires were used in compiling this report.
