IB Net Payout Yields Model

Coventry Health Soars on Earnings

Coventry Health (CVH) jumps today on better then expected earnings. This has been a continuing theme in the health insurance sector. Just yesterday Humana (HUM) strong on much stronger results. This sector in general trades at very low PEs so it isn't that surprising that they've jumped on earnings. This doesn't erase the fears that the Obama administration will continue to look at ways to wring profits from this group, but they remain very cheap at current levels.

CVH forecasts a average eps of $1.8 for 2009 placing it's PE at 8. This sector may not see the 15+ PEs of the past decade, but I'd expect some expansion to the 12 range or a 50% gain. CVH is now the 5th largest position of the Growth Fund at 4.2% of the portfolio following an added purchase yesteday on the HUM earnings.

CVH was a $60 stock when 2008 began so getting back to $15 isn't that exciting, but I wouldn't expect this sector to return to its old highs. Too much scrutiny over the next 4 years will be placed on the profits of this sector for it to regain the luster of the last 5 years. Regardless, Stone Fox would expect a stock like CVH to either get a bid or at the very least expand its multiple as the market realizes that earnings won't be depleted to the drastic levels feared.

  • Revenues increased 21.5% from the prior year quarter
  • GAAP cash flows from operations of $358.2 million
  • Operating revenues totaled $3.6 billion for the quarter with net earnings of $44.2 million, or $0.30 per diluted share.
  • Earnings per share (EPS) on a diluted basis of $1.70 to $1.90
From Briefing.com

6:46AM Coventry Health Care beats by $0.05, beats on revs; guides FY09 EPS in-line, revs in-line (CVH) 14.21 : Reports Q1 (Mar) earnings of $0.30 per share, $0.05 better than the First Call consensus of $0.25; revenues rose 21.5% year/year to $3.57 bln vs the $3.39 bln consensus. Co issues in-line guidance for FY09, sees EPS of $1.70-1.90 vs. $1.79 consensus; sees FY09 revs of $13.59-13.99 vs. $13.49 bln consensus.


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