The Zacks Analyst Blog Highlights: Crown Castle International, Coventry Health Care, Aetna, Health Net and WellCare Health Plans

Apr 25, 2013, 09:30 ET from Zacks Investment Research, Inc.

CHICAGO, April 25, 2013 /PRNewswire/ -- announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Crown Castle International (NYSE: CCI), Coventry Health Care Inc. (NYSE: CVH), Aetna Inc. (NYSE: AET), Health Net Inc. (NYSE: HNT) and WellCare Health Plans Inc. (NYSE: WCG).


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Here are highlights from Wednesday's Analyst Blog:

Crown Castle Likely to Top Expectations

We expect Crown Castle International (NYSE: CCI), the leading communication tower operator in the U.S., to beat expectations when it reports its first-quarter 2013 results after the market closes on Apr 24, 2013.

Why a Likely Positive Surprise?

Our proven model shows that Crown Castle is likely to beat earnings because it has the right combination of two key ingredients.

Positive Zacks ESP: Expected Surprise Prediction or ESP (Read: Zacks Earnings ESP: A Better Method), which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +200.00%. This is a meaningful and leading indicator of a likely positive earnings surprise.

Zacks #3 Rank (Hold): Crown Castle currently has a Zacks Rank #3. Note that the stocks with Zacks Rank #1 (Strong Buy), 2 (Buy) and 3 (Hold) have a significantly higher chance of beating the earnings.

The combination of Crown Castle's Zacks Rank #3 (Hold) and +200.00% ESP makes us confident of a positive earnings beat on Apr 24, 2013.

What is Driving the Better-Than-Expected Earnings?

Crown Castle is expected to benefit from the unprecedented adaptation of smartphones, which has propelled the demand for towers by large carriers. Additionally, continuous amendment of the LTE networks by the four major U.S. carriers will help Crown Castle to bolster its top line in the first quarter. Acquisition of 7,200 T-Mobile USA towers has extended Crown Castle's reach in the top 100 markets in the U.S. and the company will profit from the excess leasing capacity available in those towers.

Despite such strong fundamentals, Crown Castle has a highly leveraged balance sheet, which may act as a headwind for the company going forward. Additionally, continuous change in technology and higher customer concentration may exert further pressure on the company's profitability.

Coventry Upped to Outperform

On Apr 23, 2013, we upgraded Coventry Health Care Inc. (NYSE: CVH) to Outperform based on strong fundamentals, reflected by higher revenues, strong balance sheet, efficient capital deployment and stable ratings. Moreover, this Zacks Rank #2 (Buy) company is improving its operating efficiencies through acquisitions and expansions.

Why the Upgrade?

Coventry's imminent takeover by Aetna Inc. (NYSE: AET), scheduled to close by mid-2013, is projected to be beneficial for the company. Aetna is a comparatively larger company than Coventry with a stronger market position and higher credit rating.

Moreover, Coventry uses its free cash for share repurchases and acquisitions, thereby improving the bottom line. The company repurchased 9.9 million shares for $328 million in 2012, thus leaving 6.5 million shares under its existing repurchase authorization as on Dec 31, 2012.

Further, the improved sales and the retention process implemented since 2009 has transformed Coventry's Commercial Risk business into a profitable one. The business contributed 41% of the total operating revenue in 2012. Going ahead, the business is likely to continue contributing to the company's earnings.

Coventry reported positive earnings surprise in 3 of the 4 quarters in 2012, with an average beat of 12.2%. The company is expected to report its first-quarter earnings before the opening bell on May 1, 2013. The Zacks Consensus Estimate for Coventry's first quarter is currently pegged at 79 cents, representing a year-over-year increase of 26.8%.

Other Stocks to Consider

Other health maintenance organizations worth considering are Health Net Inc. (NYSE: HNT) – Zacks Rank #1 (Strong Buy) and WellCare Health Plans Inc. (NYSE: WCG) – Zacks Rank #2 (Buy).

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