The Zacks Analyst Blog Highlights: Honda Motor, Coventry Health Care, Unitedhealth Group, Aetna and WellPoint

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May 02, 2011, 09:30 ET

CHICAGO, May 2, 2011 /PRNewswire/ -- Zacks.com 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: Honda Motor Co. (NYSE: HMC), Coventry Health Care Inc. (NYSE: CVH), Unitedhealth Group, Inc. (NYSE: UNH), Aetna Inc. (NYSE: AET) and WellPoint Inc. (NYSE: WLP).

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Here are highlights from Friday's Analyst Blog:

Honda Skids but Doubles Profit

Honda Motor Co. (NYSE: HMC) revealed a 38% fall in profit to Yen 44.55 billion ($536 million) or Yen 24.72 per share (30 cents per share) in the fourth quarter of the fiscal year ended March 31, 2011 from Yen 72.18 billion or Yen 39.78 per share in the same quarter of prior fiscal year.

The decline in profit was attributable to unfavorable currency translation effects, higher selling, general and administrative (SG&A) expenses and the tsunami and earthquake in Japan. These more than offset the positive impact from cost reduction measures, lower R&D expenses, increase in sales volume (except in the Automobile segment) and model mix, and operating income related to licensing agreements.

Consolidated net sales and other operating revenues slid 3% to Yen 2.21 trillion ($26.62 billion) on the back of same factors outlined above, despite increased revenues in the motorcycle business and revenues related to licensing agreements. However, at constant exchange rates, revenues increased 3.3%. Consolidated operating profit plummeted 52% to Yen 46.21 billion ($556 million) from Yen 96.10 billion due to the same factors affecting the net income.

Coventry Surpasses Estimates

Coventry Health Care Inc. (NYSE: CVH) reported its first-quarter adjusted earnings of 66 cents per share, exceeding the Zacks Consensus Estimate of 53 cents.

Coventry's adjusted earnings in the first quarter exclude the favorable impact of 8 cents from the Medicare Advantage Private Fee-for-Service (MA-PFFS) product. The Medicare offering stands discontinued from January 1, 2010.

Including the impact of this item, Coventry reported net income of $110.2 million or 74 cents per share in the first quarter as opposed to $97.3 million or 66 cents per share in the prior-year period.

The improved showing was due to solid performance across all lines of its businesses. Besides, continued emphasis on cost containment throughout the organization and excellent liquidity position resulted in positive results.

Behind the Headlines

Total operating revenues in the reported quarter climbed 6.6% year over year to $3.05 billion, same as forecasted by the Zacks Consensus Estimate of $3.05 billion.

During the first quarter, managed care premiums increased 7.2% to $2.76 billion, while revenues from management services jumped by 1.8% year over year to $293.6 million.

Coventry witnessed total operating expenses for the reported quarter of $2.88 billion, up 6.4% from the year-ago quarter. Medical costs, the major operating expense component, hiked 7.6% to $2.28 billion. Likewise, Coventry's cost of sales, selling, general and administrative expenses (SG&A expenses) and depreciation and amortization (D&A) also increased over the said period.

Total membership in the quarter increased 6.0% to 4.6 million from the prior quarter.

Comparisons with Competitors

Rival company Unitedhealth Group, Inc. (NYSE: UNH) reported first-quarter results on April 21, 2011. Income from continuing operations was $1.22 per share, substantially better than the Zacks Consensus Estimate of 89 cents.

Aetna Inc. (NYSE: AET) reported first-quarter operating earnings of $1.43 per share on April 28, well ahead of the Zacks Consensus Estimate of 96 cents.

WellPoint Inc. (NYSE: WLP) reported first-quarter results on January 26 with income from continuing operations of $2.35 per share, surpassing the Zacks Consensus Estimate of $1.87.

Outlook for 2011

For fiscal 2011, Coventry expects to earn between $2.65 and $2.85 per share.

Coventry projects risk revenue of $10.50 billion to $10.90 billion and management services revenue of $1.18 billion to $1.20 billion for fiscal 2011.

The company expects its consolidated revenue guidance to a range of $11.68 billion – $12.10 billion. Coventry's consolidated MLR is expected between 81.9% and 82.5% in fiscal 2011.

Coventry anticipates cost of sales in the range of $264.0 million to $271.0 million, with SG&A expenses reiterated in the range of $2.00 billion to $2.04 billion, D&A between $136.0 million and $140.0 million, and interest expense in the range of $95.0 million to $102.0 million in fiscal 2011.

Coventry's other income is expected to range between $74.0 million and $78.0 million in fiscal 2011.

Shares outstanding at year end 2011 are expected to be 147.0 million to 149.0 million.

Our Take

Coventry has a solid fundamental business and continues to grow with all seven core businesses performing at or above expectations. Further, we believe that Coventry is also growing on the acquisition front, as it is making continuous efforts to expand its footprint in Missouri and Arkansas.

Additionally, Coventry's acquisition of MHP and its subsidiaries is expected to be slightly accretive to its 2011 earnings and will serve more than 1.2 million members in its six-state Midwest region.

We believe that Coventry's acquisitive growth strategy will help it to leverage its regional service centers and improve operating efficiencies, largely through economies of scale.

We maintain a Neutral recommendation on Coventry in the long term. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the stock over the near term.

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