Managed health-care company and Motley Fool Stock Advisor pick Coventry Health Care (NYSE:CVH) will report first-quarter 2007 financial results on Friday, April 27, before the market opens.

What analysts say:

  • Buy, sell, or waffle? Things haven't changed on Wall Street, as six of 18 analysts still rate Coventry a buy, 11 still say hold, and one is still saying sell.
  • Revenues. For yet another quarter, revenues are expected to rise, this time 13% to $2.2 billion.
  • Earnings. Profits, though, are only expected to rise 8% to $0.80 per share.

What management says:
While being a low-cost provider offers a lot of benefits, it's not a guaranteed way to growth, as Coventry Health Care is finding out. Although it expanded in prior periods, Coventry is seeing flat membership growth and now seeks complementary acquisitions to expand. Its latest acquisition, Concentra, should generate annual revenues of around $320 million for Coventry's specialty division. It'll also remove a tough workers' comp network and bill review competitor while also allowing Coventry to dominate that niche.

What management does:
Coventry generates revenues from both managed care ("for risk" products) and management services ("non-risk" products). In the for-risk category, membership decreased last year a little more than 2.5%, even though Medicare membership was up more than 6%. Non-risk membership grew nearly 7% because the company was able to organically increase the numbers in a number of markets, but it represents only 12% of Coventry's total revenues. Overall, membership was down less than 1% for 2006, but that helps explain the erosion seen in Coventry's margins.

Margins

12/05

03/06

06/06

09/06

12/06

Gross

31.2%

30.8%

30.2%

29.7%

29.7%

Operating

12.4%

11.6%

11.2%

11.1%

11.7%

Net

7.6%

7.3%

7.1%

7.1%

7.2%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Managed care is still in a state of flux, and some of the industry's players face uncertainty. Amerigroup (NYSE:AGP), for example, recently lost a lawsuit and faces hundreds of millions of dollars in fines that would undoubtedly weaken the insurer if they're upheld, while UnitedHealth (NYSE:UNH) reported increased profits, but said commercial costs rose to higher levels than anticipated. Still, Coventry boosted its guidance for the year and now expects a profit of $3.92 to $3.98 per share on revenue of $9.22 billion to $9.55 billion. While its valuation on trailing earnings is not at a discount to competitors', Coventry falls right in line with WellPoint (NYSE:WLP) and UnitedHealth. With its stock trading at annual highs, however, it might be worthwhile to wait for the market to offer you a discount.

For related Foolishness:

Coventry has earned a five-star rating from Motley Fool CAPS, the new investor intelligence community. You can add your voice by joining today. It's free!

Coventry and UnitedHealth are recommendations of Stock Advisor, and UnitedHealth is also a recommendation of Motley Fool Inside Value. Learn more about why they were recommended with a 30-day risk-free trial subscription.

Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.