August 3, 2012
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of health insurance provider HealthNet (NYSE: HNT ) couldn't get out of bed this morning, falling 17% after a dismal earnings report.
So what: It was a double whammy for HealthNet as EPS was way off estimates and it lopped its full-year outlook by more than half. Analysts had been expecting an adjusted profit of $0.66, but the managed care provider delivered just $0.06 per share. Higher commercial, and Medicare, costs was the explanation behind the big miss, and other insurance providers have experienced similar woes this quarter, including WellCare Health Plans (NYSE: WCG ) , which was down 9% today.
Jay Gellert, HealthNet CEO, said the company "was on the path to resolving the issues that affected second-quarter performance," but it still revised full year EPS guidance all the way down to $1.00-$1.10 per share down from $2.35-$2.50.
Now what: I'm not a fan of this sector and I think this report shows why. Future financials are very difficult to model, legislation such as Obamacare is constantly changing the economics of the business, and the industry is highly competitive with hardly any differentiation among companies. Lowering guidance is one thing, but cutting it by 60% is unheard of in most industries. If you're looking for a better play in health care, I'd go with a medical equipment manufacturer or even a drug maker, which I think are more likely to benefit from Obamacare.
Want some more prescriptions for HealthNet?