Health-care Stocks: Coventry pops on earnings; Molina slips

LOS ANGELES (MarketWatch) � Coventry Health Care Inc. didn�t seem to feel the effects of a feared downturn in the managed-care sector Friday as the company�s shares jumped on a rosy earnings report.

Coventry CVH �was up nearly 11% to $34.07 after it reported higher revenue and earnings that beat Wall Street estimates, and projected full-year earnings would exceed analyst forecasts.

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The company said net income was $91.7 million, or 65 cents a share, compared with $224.5 million, or $1.50 a share, a year ago. Sales were $3.52 billion against last year�s $3.03 billion. Coventry�s adjusted earnings were 68 cents a share, while analysts polled by Thomson Reuters called for 63 cents a share.

The company says it now sees earnings of $3.10 to $3.30 a share. The Thomson Reuters estimate was for $2.71 a share.

Allen F. Wise, Coventry�s chairman and chief executive, said in a written statement that the company was seeing improvement in its Medicaid and Medicare programs, and was getting costs under control in its Kentucky operations, a trouble spot in the past.

Earlier in the week, WellPoint Inc. WLP �told analysts that it feared the troubles it had in the second quarter would spread to other health-care insurers, casting shares down. Those effects ended up being muted.

But shares of Molina Healthcare Inc. MOH � did feel some of those effects early on in the trading day when shares fell more than 9% at one point. A broad market rally, however, helped Molina recover somewhat and the company�s shares ended the day down 1% to $24.99

The Medicaid insurer reported an 80-cent loss for the second quarter, and withdrew its forecast for the rest of the fiscal year. That stood in sharp contrast to the 2-cent gain that Thomson Reuters analysts sought from the company, as higher costs in Molina�s Texas operations took a bite out of earnings, as well as bigger medical expense ratios in some of its other regions.

/quotes/zigman/317140/quotes/nls/moh MOH 24.99, -0.30, -1.19% Molina Healthcare

Long Beach, Calif.-based Molina�s 80-cent loss translated to a shortfall of $37.3 million, swinging from a gain of $17.4 million, or 38 cents a share, for the same period a year ago. Revenue for the period was $1.54 billion against last year�s $1.17 billion.

Molina saw a rapid membership expansion in Texas, adding 172,000 members and more than a quarter-billion dollars in sales. But costs also were driven up and the medical-loss ratio � the percentage of revenue spent on providing care � was 109.4%, up from 95% a year ago. Texas accounts for nearly a quarter of Molina�s premiums.

In the Hidalgo and El Paso areas, the medical-loss ratios were 139% and 146%. But the company said the state�s payout rates should improve, while costs will be driven down, and it expects to return to profitability in the region in the next several months.

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Analyst Matthew Borsch of Goldman Sachs said in a note to clients that the Texas episode is proving to be a �learning experience� for the company that was expected to reap rewards from the Supreme Court�s upholding of President Barack Obama�s health-care overhaul. The bill includes Medicaid expansion that should benefit Molina.

�While the [second-quarter] loss is a big disappointment, this year should prove to be a learning experience for [Molina] and the industry as states move to convert the high morbidity segments of the Medicaid population to private-sector managed care,� Borsch wrote. �The opportunity is big since these members represent a minority of members but a majority of spending. However, the [second-quarter] loss underlines the importance of adequate contract terms and rates.�