Health Net shares reduced to 'Hold' on valuation

AP News
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Posted: Dec 11, 2009 1:15 PM

A Stifel Nicolaus analyst downgraded shares of managed care company Health Net Inc. to "Hold" from "Buy" on Friday, noting that the stock appears to be approaching fair value.

Woodland Hills, Calif.-based Health Net said on Thursday it expects earnings per share of between $2.30 and $2.40 in 2010, with revenue falling between $13 billion and $13.5 billion.

Analysts surveyed by Thomson Reuters expect earnings per share of $2.04 on $13.49 billion in revenue.

Stifel Nicolaus analyst Thomas Carroll said in a research note Health Net shares have already climbed more than 50 percent in the second half of 2009, outperforming the benchmark Standard & Poor's 500 index.

He said a clearer view has emerged of the contribution Health Net will receive next year from Tricare, which provides insurance for military members. He also noted the insurer is making continued progress toward the sale of its Northeast division, which it expects to close this year.

Minnetonka, Minn.-based UnitedHealth Group Inc. said in July it will pay about $510 million to buy Health Net operations that include members in Connecticut, New York and New Jersey.

Carroll said Health Net shares have "appreciated appropriately, and we are now comfortable with a 'Hold' rating."

The analyst also said he was "positively inclined" on managed care as the health care overhaul debate in Congress becomes more clear, but recent outperformance may be hard to maintain.

"The managed care industry may avoid the long-term risk of a public plan structure, but we expect further compromises into the final days of debate and suggest that sentiment has reached a near-term high in the sector," he wrote.

Health Net shares fell 46 cents, or 1.94 percent, to $23.30 in Friday afternoon trading. Meanwhile the S&P 500 rose less than 1 percent.