Business:
Managed health care company
Headquarters:
Woodland Hills
CEO:
Jay M. Gellert
Market Cap:
$2.4 billion Dividend Yield: N/A*
Total Liabilities:
$1.8 billion P/E Ratio: 14.93
Long-Term Debt:
$650 million
* Health Net does not pay dividends.
Having shed an unprofitable division, boosted premiums and settled a nearly $400 million claim against the Department of Defense, Health Net Inc. is poised to see its stock price climb, according to several industry analysts.
The company’s stock was trading last week at about $20 a share, 25 percent off its 52-week high of $26.87 on Dec. 28, due largely to continued turmoil in the managed care industry, analysts said.
While down year-to-date, the stock remains well above its 52-week low of $7.68 last March.
“Health Net has moved from a strong regional player with (the fifth-largest market share) in the largest state in the country to a diversified managed care organization operating in eight core states,” said Joshua Raskin, an analyst with Lehman Brothers. “We now begin to look for signs of growth from the company, having established its position.”
Raskin raised his 2001 earnings estimate to $1.60 per share from $1.55, and raised his 12-month price target to $30. He also rates the stock a “strong buy.”
Based in Woodland Hills, Health Net through its HMO, PPO and government contracts provides health care benefits to 5.4 million subscribers in a total of 16 states through group, individual, Medicare, Medicaid and Tricare military programs.
The company agreed in February to sell its Florida health plan, Foundation Health of Florida, for $48 million. The sale to Florida Health Plan Holdings II LLC, a regional health plan owned and operated by Dr. Steven Scott, is expected to close by June 30.
“We were the eighth-largest health plan in a competitive market,” said Lisa J. Haines, a spokeswoman for Health Net, of the decision to pull out of Florida. “It just wasn’t one of our core markets.”
The plan has about 170,000 members in southeastern Florida.
“We estimate that Health Net will be able to more than offset the Florida member losses in 2001 with gains in other regions,” said Raskin. “The Florida operations were running at an operating loss of $20 million throughout 2000, and could have been even higher depending on the company’s reserve policies.”
For its Florida unit, the company will receive $23 million in a cash payment upon completion of the sale and the remaining $25 million in the form of a 5-year secured note earning 8 percent annually.
“We believe the elimination of losses in Florida and improved pricing in Arizona, combined with meaningful Medicare-plus-Choice market exits, start to give visibility to our preliminary 2002 earnings-per-share estimate of $1.80,” said James A. Lane, an analyst with Salomon Smith Barney, in a research report.
Health Net reported net income of $46.2 million (37 cents per diluted share) for the fourth quarter ended Dec. 31, up from $37.3 million (31 cents a share) in 1999.
Fourth-quarter revenues were $2.3 billion, compared to $2.2 billion in 1999. The company expects to release its first-quarter financial results in early May.
The company said it added 125,000 customers in the fourth quarter, mostly in less-expensive employer plans popular with businesses trying to save money on health care costs. Health Net also raised premiums by more than enough to cover the increases in medical costs, and it brought administrative expenses under control.
In January, the company announced that its Federal Services unit received a $389 million settlement from the Department of Defense for costs related to three current Tricare program contracts.
Haines said that $120 million to $130 million of the settlement is owed to vendors. A portion of the settlement will be applied to taxes, and the balance will go to fund the continuing operating needs of the Tricare contracts.
Meanwhile, Health Net, WellPoint Health Networks Inc., Cigna Corp., and four other health insurers continue to defend themselves in a number of lawsuits that are expected to be re-filed this month. The lawsuits by a number of doctors and patients in Florida claim that insurers denied claims or paid them too slowly and didn’t tell patients that the insurers had offered doctors financial incentives to limit care.
Last month, the managed care companies won a partial victory when U.S. District Judge Federico Moreno in Miami dismissed suits claiming that health maintenance organizations had conspired against doctors.
Moreno, however, allowed the plaintiffs to amend some legal claims, and said breach-of-contract claims under Florida law may stand.
“There are better ways of resolving these issues than in the courtroom,” asserted Health Net spokeswoman Haines.
