A Wedbush analyst said Wednesday that health insurers could report a better third quarter than Wall Street is expecting, and she raised her price targets and profit estimates for several companies.
Analyst Sarah James said medical costs for health insurers may be lower than expected in the third quarter, leading to larger profits for the companies. She said costs are down because of the flu season, which has been mild so far, along with higher prices, increased enrollment, and decreased use of expensive inpatient services. James said that could lead to a stronger 2010, but said enrollment may not live up to expectations in 2011.
In a note to clients, James raised her third-quarter and full-year profit estimates for UnitedHealth Group Inc. WellPoint Inc., Coventry Health Care Inc., and Aetna Inc. She boosted her price targets on UnitedHealth, HealthSpring Inc., and Amerigroup Corp. She said that Humana Inc. is the health insurer most likely to top Wall Street estimates: James expects the company to earn $1.71 per share in the third quarter, while analysts polled by Thomson Reuters expect $1.66 per share on average.
She said Humana should be able to keep Medicare and Medicaid members, and could also surpass expectations in 2011 if it can win more Medicare Part D prescription drug benefit business. James, who said she has a favorable view of companies that do a significant amount of Medicare and Medicaid business, expects Humana to earn $6.46 per share next year. Analysts expect $5.78 per share on average.
The analyst maintained "Outperform" ratings on Amerigroup, Centene Corp., HealthNet Inc., Humana, Molina Healthcare Inc., and Universal American Corp.
In afternoon trading, Humana shares rose $1.58, or 3 percent, to $53.78. Shares of UnitedHealth gained 58 cents to $35.60, while Aetna stock picked up 90 cents, or 2.9 percent, to $31.91 and WellPoint shares added $1.10 to $56.76. Coventry stock edged up 19 cents to $23.08.