Every investor loves a good CEO ouster, especially when shares of the firm in question fell 75% during the previous year. I'm not sure it was entirely the fault of Coventry Health Care's (NYSE:CVH) old CEO, Dale Wolf -- UnitedHealth Group (NYSE:UNH) fell 53% and Aetna (NYSE:AET) fell 67% last year -- but alas, he's out, and the company has a new CEO, Allen Wise.
Or should I say, a new old CEO; Wise was previously the company’s CEO for eight years until he retired in 2004. He stepped in from his role as chairman after the board decided they needed a little more oversight than Wolf was willing to give. Considering how badly the health insurers underestimated the rise in health-care costs, I think all the companies in the industry could use someone checking over the math.
Coventry paid out 84% of its revenue on claims last year, compared to the 79.6% it paid in 2007. That's 440 basis points of revenue that wasn't able to trickle down into earnings because it's being eaten up by expenses. Next year doesn't look any better, with Coventry guiding for a medical loss ratio of 84.8% to 85.4%, although it is expecting revenue to jump 10% to 15%, so at least there will be more at the top to be eaten up.
The one thing Coventry does have going for it is its balance sheet. While Cigna (NYSE:CI) and WellPoint (NYSE:WLP) have seen some of their investments sink during the financial meltdown, Coventry ended the year with an unrealized gain. Kudos to the boys and girls in the investment office.
The nice thing about health insurers is that they get a do-over every year as premiums reset. If the new CEO can raise premiums and keep costs under control, Coventry should see the same kind of growth that it saw under his last reign.
More Foolishness:
- Some insurers have doubled off their lows.
- Seven dirt cheap stocks.
- An opportunity to go nuts over.
