Investopedia: The Week Ahead In Healthcare

Healthcare investors should enjoy the respite in the healthcare sector over the next few weeks. Once the calendar turns to September, major conferences start again, early earnings warnings will begin to pop up and analysts and investors in general will start to pay a great deal more attention to the companies and stocks. Likewise, while the FDA's calendar is relatively empty this month, activity ought to be picking up shortly.

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Seeking Alpha: Coventry Makes Sense For Aetna

If at first you don't succeed in M&A, keep bidding until you do. That might be the mantra that Aetna (AET) followed, letting other players in the health insurance space pay more for other assets, but ultimately getting a pretty solid company of its own in Coventry Health (CVH). While there are certainly some risks in buying a health insurance company about two months away from the U.S. presidential election, the long-term logic of the deal seems likely to hold.

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Coventry Makes Sense For Aetna

Investopedia: No Rattle At HUM

Managed care, that bizarre euphemism for health insurance, has twisted up investors for a while now. Although there are ever-present worries about the future profitability of this industry, none of the plans on the table would seem to be all that big of a risk. So while Humana (NYSE:HUM) has joined many of its brothers in a healthy rally over the past year, Wall Street still does not seem to be giving full credit to this stock.

Solid Third Quarter Results 

Humana reported that overall revenue rose about 11% this quarter, with operating revenue up a like amount. Growth was underpinned by premium growth of nearly 9% and membership growth above 6%. Profitability was likewise encouraging. The company's medical loss ratio, that is, what it pays out in claims, improved by roughly a full point to 80.7%, and the company's earning before interest, taxes, depreciation and amortization (EBITDA) rose 13%. Operating income was up a similar amount, growing 12% from the year-ago level. (To know more about EBITDA, read: EBITDA: Challenging The Calculation.)

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WellPoint Healthier Than It Looks

Healthcare reform certainly does not look like it will do any favors for WellPoint (NYSE: WLP), one of the largest health insurance providers in the country (and the largest in terms of covered members). After all, it is never good news when the government steps in and effectively decides what your cost of goods should be. Even so, investors seem to be underestimating the inherent earnings power and value of this well-run company.

The Quarter That Was
WellPoint was not exactly at the peak of health this quarter. Operating revenue fell almost 6%, with a 5% decline in premium revenue and a 1% decline in membership. WellPoint also saw an increase in its benefit expense ratio, as the figure moved up to 83.8% from 82.1%. This increase was a byproduct of reduced federal reimbursement, as well as resistance to rate increases in California. 

Moving along, the company did a decent job of controlling expenses. SG&A was down almost 8% from last year's level and about 3.3% over the equivalent nine-month period. Nevertheless, operating income fell 19% as margins in the consumer business segment decreased by 620 basis points. On a more positive note, the company continues to spend a huge amount of its surplus cash on its own shares - buying back more than $3 billion in shares so far and targeting up to $4 billion for the full year.


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