Thursday is judgment day for Amerigroup
A little over three weeks ago, the managed health-care provider shocked the market when it announced that skyrocketing health-care costs -- for which it's on the hook as its clients' insurer -- will likely transform its expected Q3 profit into a loss of $0.06 to $0.08 per share.
Compounding that bad news was Amerigroup CEO's Jeffrey McWaters' candid statement, "A problem like this makes you think we don't know what we're doing. I will not attempt to convince you otherwise."
When a CEO comes out and "tells it like it is" like that, a Wall Street jaded by recent memories of Tyco
Which explains Wall Street's bleak expectations for Amerigroup. Having already thrown their earlier research out the window on hearing September's news, analysts now expect the absolute worst. The consensus of the 12 analysts surveyed is that Amerigroup will hit only the lower end of its revised guidance -- an $0.08 per-share loss. Some analysts fear it will be even worse than that and are calling for a $0.10 loss.
Reflecting the sentiment that Amerigroup will have no quick fix, analysts looking further down the road see the company's Q4 earnings declining by more than half from last year, to $0.19 per share, and ending the year at $0.92 -- down 45% from fiscal 2004.
All of which I would like to use as a prelude to the "good" news: Amerigroup is fast approaching the point where all bad news has been "baked into" the stock price. I know that, back in September, I concluded my column on the earnings warning by opining: "This already badly abused stock could have farther to fall." Well, guess what? It has fallen farther. As of this writing, pre-earnings, Amerigroup is now down 59% from its pre-warning price.
I still think investors should be cautious here. It seems no one -- not analysts, not management, and certainly not yours Fool-y -- knows what's really going on at Amerigroup. That said, when a company is expected to suffer a 45% drop in annual profits and the market reacts by chopping its stock price 59%, my Foolish value-seeking radar starts beeping. If management can make a credible case tomorrow that it has gotten a handle on what went wrong and how to fix it, now may be the time to give this company another look.
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