Health Net, Inc.’s HNT second-quarter 2015 operating income came in at 95 cents per share. The figure exceeded the Zacks Consensus Estimate of 88 cents and improved 53.2% year over year.
The quarter benefited from higher memberships and moderate health care costs.
Including one-time items, Health Net’s net income came in at 75 cents per share compared with $1.49 earned in the year-ago quarter.
Health Net’s total revenue increased 21.7% year over year to approximately $4.2 billion. The top-line growth was driven by higher health plan services premiums as well as an increase in net investment income. Revenues were in line with the Zacks Consensus Estimate.
Total expenses increased 21.3% year over year to $4 billion.
Segment Performance
Western Region Operations: Revenues of $4.0 billion in the quarter surged almost 23% year over year on higher enrollment in the company’s Medicaid business. Net investment income increased about 36.7% year over year to $16.4 million. Health plan services expenses increased 22% year over year to $3.4 billion on enrollment gains from Medicaid and dual-eligibles business.
As of Jun 30, 2015, total enrollment in the segment rose 11% year over year to 3.2 million members. Western Region commercial enrollment decreased 7.5% to 1.2 million members owing to losses in the Arizona individual business and California large group business. Enrollment under the company’s California health plans increased 13.6% to 2.9 million members. Enrollment increased 2.7% to 0.269 million in Medicare Advantage plans. Medicaid enrollment also increased 27.4% to 1.8 million due to Medicaid expansion under the ACA. Dual eligible enrollment added 0.03 million members.
Medical Care Ratio (MCR) for Health Net’s health plan services in the segment improved 70 basis points to 84% from the prior-year quarter due to strong performance by the Medicaid business in California.
Government Contracts: Revenues decreased 8.4% year over year to $141.1 million in the quarter. Expenses increased 3.5% to $137.2 million on higher costs related to enhanced service associated with the U.S. Department of Veterans Affairs (VA)-related programs and services.
Financial Update
As of Jun 30, 2015, Health Net had cash and investments of approximately $3.1 billion, up from $2.3 billion as of Jun 30, 2014. The company’s debt-to-capital ratio deteriorated to 26.3% as of Jun 30, 2015 from 21.5% as of Jun 30, 2014.
Health Net’s operating cash outflow totaled $260.3 million in the quarter compared with an outflow of $13.8 million in the year-ago quarter. The deterioration stemmed from the timing of payments associated with the state health programs.
Total assets of Health Net were worth $5.9 billion as of Jun 30, 2015, higher than $4.8 billion as of Jun 30, 2014. Stockholders’ equity was $1.7 billion as of Jun 30, 2015 as against $1.8 billion as of Jun 30, 2014.
Business Update
On Jul 2, 2015, Health Net, and Centene Corporation CNC entered into an agreement pertaining to which, the latter will acquire all the shares of the former to form a combined entity.
The total consideration of the deal is $6.8 billion, including cash, stock and $500 million of debt. The $78.57 per share deal represents a premium of nearly 21% over Health Net’s closing price as of Jul 1, 2015. Per the terms of the agreement, shareholders of Health Net will receive 0.622 shares for each Centene share and $28.25 in cash per Health Net share.
The transaction is pending approval from shareholders of both the companies and is scheduled to culminate by early 2016.
Guidance
Health Net reiterated its full-year 2015 guidance.
The company expects combined earnings per share from Western Region and Government Contracts to be in the range of $3.25–$3.35.
Health Net still expects net income per share of a minimum of $2.70.
Revenues are expected to be around $16.7 billion while memberships were affirmed at 3.457 million.
G&A expense ratio and Admin Expense Ratio are affirmed at 10.8% and 7.2%, respectively.
Performance of Other HMOs
Aetna Inc. AET reported second-quarter 2015 earnings of $2.05 per share, way ahead of the Zacks Consensus Estimate of $1.84 per share.
Anthem Inc. ANTM reported second-quarter 2015 adjusted income of $3.10 per share that surpassed the Zacks Consensus Estimate of $2.74.
Zacks Rank
Health Net presently holds a Zacks Rank #2 (Buy).
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