Why Health Net Shares Spiked Temporarily

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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 Net (UNKNOWN: HNT.DL  ) , a managed health-care provider, jumped higher by as much as 18% following the release of the company's first-quarter earnings results. Shares have since given back a majority of their gains and are up "just" 7% as of this writing.

So what: For the quarter, Health Net reported $2.797 billion in revenue and a profit of $0.62. Although revenue was in line with expectations of $2.79 billion, the Street's consensus EPS estimate had only called for a profit of $0.41. A combination of lower expenses, as well as a big boost in the commercial side of its business with lower utilization rates, allowed it to dramatically surprise investors. In addition, Health Net boosted its full-year EPS forecast to a range of $2.20-$2.30 from a previous range of $2.00-$2.10. However, it wasn't all perfect, as the company also lowered its commercial premium yields in anticipation of higher future costs.

Now what: It's been a spectacular month for Health Net, which crushed Wall Street's estimates today and, earlier this month, got a big boost when the Centers for Medicare and Medicaid Services reversed a recommendation in February calling for a 2.3% decrease in reimbursements for the Medicaid Advantage program to a reimbursement increase of 3.3%! It still remains to be seen how well government-reliant insurers will do under the full implementation of the Patient Protection and Affordable Care Act, but this is certainly more fuel for the fire that insurers will likely be just fine.

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Related Tickers

12/31/1969 7:00 PM
HNT.DL $0.00 Down +0.00 +0.00%
Health Net CAPS Rating: *****