Once again, managed health-care company AMERIGROUP
Yet even as the Motley Fool Stock Advisor recommendation's results continue to show underlying strength, which should serve it well going forward, a few unanswered questions remain to give Foolish investors pause.
Revenues rose by 24% to $832.3 million, as membership rolls expanded 21% to more than 1.3 million. While the company was able to increase rates, that increase landed at the lower end of its 3% to 4% target range. Higher medical, administrative, and interest expenses took more than a scalpel's slice out of profits, with net income falling 43% from last year's results. Even so, the results were still better than what analysts had predicted.
The health-care company's health benefits ratio climbed to 83.4% from 80.4% last quarter, because of seasonality and a number of other factors. Although AMERIGROUP was not alone in this experience, with WellPoint
AMERIGROUP also had to take on new debt to post a bond in the amount of $351 million to stop the enforcement of a judgment against it in an Illinois legal case. The company was found guilty of discriminating against pregnant welfare mothers, but the company denies that charge, contending that it acted with the full knowledge of the state's public aid department.
While the suit was brought by an apparently disgruntled former AMERIGROUP employee, pitting an insurance company against a sympathetic group like pregnant mothers made the case difficult to win. Despite the belief in its position, and its intention to appeal the decision, it seems foolhardy that AMERIGROUP failed to set aside any reserves for a possible loss. Perhaps it will win on appeal; perhaps not.
AMERIGROUP is not standing idly by waiting for a court decision, though. It began offering coverage in Tennessee at the start of the month, which swelled membership rolls to 1.5 million. Molina Healthcare
With rising enrollment, expanding coverage, and affirmation of full-year profit projections, AMERIGROUP gives all the outward signs of being healthy. However, it is also facing higher costs on several fronts, and the court decision still hangs over it. At this point, I'd still be leery of the stock catching a cold.
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