Health Net's Core Growth Opportunities Continue to Impress

We issued an updated research report on Health Net, Inc. HNT on Aug 19, 2015.

Earlier this month, the company reported second-quarter earnings that surpassed the Zacks Consensus Estimate and improved year over year on higher memberships and moderate health care costs.

Last month, Health Net inked a deal with Centene Corp. CNC following which, the company will be acquired by the latter by early 2016. On culmination, Centene shareholders will have 71% stake in the combined entity, while Health Net shareholders will own the remaining 29%.

Health Net has witnessed an increase in premiums in its segment – Health Plan Services – over the past few years and the second quarter was also no exception. Additionally, the Arizona Health Care Cost Containment System (AHCCCS) program has been increasing Health Net's revenues by providing access to its extensive client base.

Health Net has been slowly disposing its non-profitable businesses to improve its bottom line. The divestitures of the Medicare stand-alone Prescription Drug Plan PDP business of its subsidiaries in 2009 and 2012 have not only fetched cash for the company but also enabled it to concentrate on its core markets. Additionally, the company scores strongly with the credit rating agencies.

However, the rate of customer attrition in Health Net's health plans is alarming. Moreover, declining revenues in the government contracts segment might affect overall profitability. Also, change in estimates for the 3Rs related to 2014 led to a reduction in pre-tax income by $9 million in the second quarter of 2015.

Health Net currently holds a Zacks Rank #2 (Buy). Investors interested in the health maintenance organization (HMO) space can also consider stocks like UnitedHealth Group Incorporated UNH and Nobilis Health Corp. HLTH. Both the stocks have the same Zacks Rank as Health Net.

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UNITEDHEALTH GP UNH: Free Stock Analysis Report
 
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