Zacks Analyst Blog Highlights: Costco Wholesale, BJ's Wholesale Club, Wal-Mart Stores and UnitedHealth Group - Press Releases - Costco Wholesale (NASDAQ:COST), BJ's Wholesale Club (NYSE:BJ)

For Immediate Release

Chicago, IL – November 9, 2010 – Zacks.com Analyst Blog features: Costco Wholesale Corporation (COST), BJ's Wholesale Club Inc. (BJ), Wal-Mart Stores Inc. (WMT), Health Net Inc. (HNT) and UnitedHealth Group Inc. (UNH).

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Here are highlights from Monday's Analyst Blog:

Costco Sustains Momentum

Costco Wholesale Corporation COST, one of the leading U.S. warehouse club operators, recently posted healthy sales data for the four-week period ended October 31, 2010.

The company sustained its sales momentum. After a 5% increase in September 2010, Costco's comparable-store sales for October rose 6%, reflecting comparable sales growth of 4% at its U.S. locations and 14% at its international divisions.

For the nine-week period ended, the company registered comparable-store sales growth of 6%, with U.S. and international sales improving 3% and 14%, respectively.

The sales results include contributions from the company's Mexico joint venture. Costco began incorporating results of its Mexico operations on a prospective basis with the commencement of its fiscal 2011 on August 30, 2010.

Excluding the effects of gasoline prices and a softer dollar, Costco's comparable-store sales for October climbed 5% with U.S. and international comparable sales increasing 3% and 10%, respectively. For the nine-week period ended, the company registered comparable-store sales growth of 4% with U.S. sales rising 2% and international sales climbing 10%.

Total net sales for October jumped 11% to $6.30 billion from $5.69 billion in the same month last year. For the nine-week period, sales increased 10% to $13.81 billion from $12.53 billion delivered in the same period last year.

Excluding the contribution from the company's Mexico joint venture, sales would have increased 8% and 7%, for the four and nine-week periods, respectively.

On a regional basis, Costco registered robust performance in Texas, the Midwest and the Northwest, and witnessed improving trends in its Californian business. Comparable-store sales remained strongest internationally, except U.K., which continues to grapple with a sluggish economy.

Costco currently operates 577 warehouses, including 420 in the United States and Puerto Rico, 80 in Canada, 32 in Mexico, 22 in the United Kingdom, 9 in Japan, 7 in Korea, 6 in Taiwan and 1 in Australia.

Currently, we have a Neutral rating on Costco. The Zacks #3 Rank, which translates into a short-term Hold recommendation, also correlates with our long-term view.

Costco continues to be a dominant retail wholesaler based on its breadth and quality of merchandise offered. The company's strategy to sell products at heavily discounted prices has helped it to remain on a positive growth track amid beleaguered economic conditions as cash-strapped customers continue to reckon Costco as a viable option for low-cost necessities. Having delivered consistent comparable-store sales growth, Costco is strongly positioned in the warehouse club industry.

However, Costco faces stiff competition from BJ's BJ's Wholesale Club Inc. (BJ) and Sam's Club, a division of Wal-Mart Stores Inc. (WMT). These two rivals follow similar business models as they market high volumes of merchandise at low prices in a membership-only warehouse clubs. Thus, aggressive pricing to gain market share and drive traffic amid stiff competition, may depress sales and margins.

Health Net Beats, Raises Outlook

Health Net Inc. (HNT) reported third-quarter earnings per share (EPS) of 64 cents compared to a loss of 66 cents in the prior-year quarter. The reported quarter included $8.6 million in expenses primarily related to severance costs. Excluding these items, the company's operating EPS came in at 72 cents, modestly surpassing the Zacks Consensus Estimate of 71 cents.

Health Net's Western Region Operations and Government Contracts segments produced combined net earnings of 74 cents in the reported quarter as opposed to 75 cents in the prior-year quarter.

Health Net reported a 14.5% year over year decline in total revenues to $3.4 billion. The primary reason for the decline was the sale of its Northeast businesses in December 2009 and a reduction in membership. Health Net's health plan services premium revenues also decreased by approximately 22.0% in the reported quarter to $2.5 billion.

Health plan services expenses plunged to $2.1 billion as against $2.7 billion in the prior-year quarter, while investment income plummeted to $19.5 million from $27.7 million in the prior-year quarter.

Segment Performance

Western Region: The segment posted revenues of approximately $2.5 billion, flat with the year-ago quarter.

Investment income for the segment declined 9% year over year to $19.2 million, while health plan services expenses were flat with the prior-year quarter at approximately $2.1 billion.

Total enrollment in the segment declined 1.7% to approximately 2.5 million members. Total commercial enrolment declined 6.4% to approximately 1.4 million members. While enrolment in the Medicaid business (896,000 members) recorded a year-over-year increase of 6.5%, enrolment in Medicare PDP plans (432,000 members) and Medicare Advantage plans (221,000 members) declined 7.3% and 1.8%, respectively.

Medical care ratio (MCR) for Health Net's health plan services in the segment declined 6 basis points (bps) to 86.3% during the quarter compared to 86.9% in the year-ago period. Commercial MCR declined 16 bps to 86.3%. While the Medicare Advantage MCR in the segment was 89.4% compared with 88.4% in the year-ago quarter, Medicare Part D MCR improved to 64.6% in the quarter compared with 65.9% in the prior-year quarter.

Government Contracts: Revenues in the segment increased 13.5% in the quarter to $860.7 million from $758.5 million in the previous-year quarter. Year over year, cost ratio climbed slightly from 94.4% to 94.5%.

Northeast Operations: Health Net continues to serve the members of the sold Northeast business to UnitedHealth Group Inc. (UNH) as per the agreement, the income from which has been shown separately. The revenues and expenses associated with the company's Northeast Operations in the quarter were $50.1 million and $57.8 million, respectively.

Financial Update

As of September 30, 2010, Health Net recorded cash and investments of $1.9 billion, compared with $1.8 billion as of September 30, 2009. However, the company's debt-to-total capital ratio declined to 22.7% at the end of the reported quarter as compared with 26.2% at the end of the prior-year quarter and 23.4% at the end of the previous quarter.

Nevertheless, Health Net's operating cash flow was recorded at a negative $54.3 million due to delays in the receipt of approximately $164 million in Medicaid payments in October 2010. Health Net's operating cash flow would have been approximately $109.7 million, had the payments been received during the third quarter of 2010.

Outlook

Health Net has provided its GAAP EPS guidance for 2010 at $2.07-$2.17, while the company has raised the EPS guidance to $2.55 to $2.58 per share ($2.50-$2.55 per share expected previously) for the combined Western Region Operations and Government Contracts segments for 2010. The company has also provided guidance for year-end membership in the Western Region, with enrolment in the commercial business to be down 3%-4% (a fall of 1%-2% expected previously), PDP to be down 6%-7% and Medicare Advantage to be down 2%-3%, while enrolment in Medicaid is to be up 5%-6%.

Health Net also expects revenues for the combined Western Region and Government Contracts segments to be in the range of $13.0-$13.5 billion. Tax rate for Health Net is expected at 39.0% for 2010.

The company also expects selling cost ratio to be 2.4% in 2010, government contracts ratio to be in the range of 94.5%-95.0% and general and administrative expense ratio to be in the range of 8.8%-9.0% for 2010. Management expects operating income for fiscal 2011 to be greater than in 2010, based on currently anticipated share repurchase activity in the fiscal.

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