HealthSpring Inc. (HS) is cheap as it trades at just 5.7x forward estimates. Yet the company just surprised on estimates for the fourth quarter in a row.
HealthSpring provides Medicare Advantage coordinated health care plans in 7 states, including Alabama, Florida, Georgia, Illinois, Mississippi, Tennessee and Texas. The company also provides a national stand-alone Medicare prescription drug plan.
HealthSpring Surprised By 69% in the Second Quarter
On July 29, HealthSpring reported its second quarter results which beat the Zacks Consensus Estimate by 40 cents.
Earnings per share were 98 cents compared with the Zacks Consensus of 58 cents. The company made 58 cents in the year ago quarter.
Premium revenue rose 12.6% to $756.3 million from the year ago quarter as Medicare Advantage membership climbed 8.3% to 197,436. Stand-alone PDP membership soared 33.9% to 394,599 compared to the second quarter of 2009 and was up 26.1% over the number of members at the end of 2009.
Medicare Advantage premiums rose year over year to $1082 per member per month compared to $1075 in 2009.
The company has been repurchasing stock under a repurchase plan authorized in May 2010. In the second quarter, it purchased 838,000 shares for $14.3 million, or an average cost of $17.10 per share.
Raised Guidance
HealthSpring is bullish about the rest of the year as it expects favorable member retention and lower inpatient utilization of its health plans. It raised its 2010 earnings per share guidance to the range of $31.5 to $3.25 from its April guidance of $2.60 to $2.75.
It is maintaining its estimate for Medicare Advantage membership in the range of 198,000 to 200,000 however.
Revenue is now expected between $2.95 billion and $3 billion which is up from April’s guidance of $2.9 and $2.95 billion.
Zacks Consensus Estimates Jump
As expected, given the beat and the higher earnings guidance revision, analysts have moved to raise estimates.
The third quarter Zacks Consensus has jumped by 10 cents to 82 cents in the last 30 days.
The 2010 Zacks Consensus is up 22% to $3.19 from $2.61 per share in the last month as 9 estimates moved higher in that time. Analysts now expect 32% earnings growth.
2011 looks a bit dicier, however. While 8 estimates have also moved higher for 2011 in the last 30 days, analysts still expect earnings to cool down. The Zacks Consensus Estimate is only calling for $2.93 per share, or 8% under 2010’s earnings.
Value Fundamentals
HealthSpring has been a value stock for awhile. In addition to its low P/E, it has a PEG of just 0.5, which is well under the 1.0 level designating a deep value stock and under the industry average of 0.9.
Its price-to-book ratio is 1.1, under the industry average of 1.5. The company also has a stellar 1-year return on equity of 18.1%, whereas the industry is at just 12.6%.
HealthSpring is a Zacks #1 Rank (strong buy) stock.
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