Health Net Posts In-Line Q4 Earnings, Misses on Revenues

Health Net, Inc.'s HNT fourth-quarter 20Array5 operating income came in at 66 cents per share, in line with the Zacks Consensus Estimate. The bottom line improved Array.5% year over year.
 

The quarter benefited from higher memberships and moderate health care costs.

Including one-time items, Health Net's net income was 47 cents per share, reflecting a nearly eightfold increase year over year.

Health Net's total revenue increased 7.4% year over year to approximately $4 billion on the back of higher enrollment in the Western Region health plans. However, revenues missed the Zacks Consensus Estimate of $4.2 billion.

Total expenses increased 5.2% year over year to $3.9 billion.

Full-Year Highlights

Health Net's operating income came in at $3.30 per share, up 42% over 20Array4.

Revenues totaled Array6.2 billion, up Array6% year over year.

Segment Performance

Western Region Operations: Fourth-quarter revenues of $4.0 billion increased 9.5% year over year. Net investment income was up 7.2% year over year to $ArrayArray.9 million. Health plan services' expenses declined 3% year over year to $3.2 billion.

As of Dec 3Array, 20Array5, total enrollment in the segment grew 4.5% year over year to 3.3 million members. Western Region commercial enrollment decreased 6% to Array.Array million members owing to losses in the Arizona and Northwest induvial lines of business. Enrollment under the company's California health plans increased 8% to 3 million members. Enrollment in Medicare Advantage plans were 0.3 million, down 22%. Medicaid enrollment soared Array2.8% to Array.9 million due to Medicaid expansion under the Affordable Care Act.

Medical Care Ratio MCR for Health Net's health plan services in the segment improved Array20 basis points to 83.5% from the prior-year quarter due to strong performance by the Medicaid business.

Government Contracts: Revenues increased 7.8% year over year to $Array72 million in the quarter. Expenses increased 5% to $Array65.9 million.

Financial Update

As of Dec 3Array, 20Array5, Health Net had cash and investments of approximately $2.3 billion, down from $2.7 billion as of Dec 3Array, 20Array4. The company's debt-to-capital ratio deteriorated to 27.2% as of Dec 3Array, 20Array5 from 22.6% as of Dec 3Array, 20Array4.

Health Net's operating cash inflow totaled $43Array.Array million in 20Array5, down from $776 million in 20Array4.

Total assets of Health Net were worth $6.4 billion as of Dec 3Array, 20Array5, higher than $5.4 billion as of Dec 3Array, 20Array4. Stockholders' equity was $Array.8 billion as of Dec 3Array, 20Array5 against $Array.7 billion as of Dec 3Array, 20Array4.

Share Repurchase Update

Health Net spent $94 million in 20Array5 on buying back Array.7 million shares. At Dec 3Array, 20Array5, the company had about $306 million worth shares remaining under its repurchase authorization. However, the program has been suspended since Jul 2, 20Array5 owing to the company's pending merger with Centene Corporation CNC.

Business Update

On Jul 2, 20Array5, Health Net entered into an agreement with Centene under which the latter will acquire all the shares of the former to form a combined entity. The total consideration of the deal is $6.8 billion, including cash, stock and $500 million in debt. The transaction is pending regulatory approval and is scheduled to culminate by early 20Array6.

Health Net completed its transaition to a single claims payment platform in the fourth quarter, resulting in considerable reduction in the claims inventory through more efficient claims processing.

Zacks Rank

Health Net presently carries a Zacks Rank #3 (Hold).

Performance of HMOs

The bottom line at UnitedHealth Group Inc. UNH beat the respective Zacks Consensus Estimate while the same at Anthem Inc. ANTM missed our expectation in the fourth quarter.

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