Health Net, Inc.’s (HNT) fourth-quarter 2014 operating income, which comprised combined net earnings from the Western Region Operations and Government Contracts segments, came in at 65 cents per share. The figure exceeded the Zacks Consensus Estimate of 57 cents and improved 160% year over year due to membership gains.
Including one time items, Health Net’s net income came in at 6 cents per share, comparing unfavorably with 25 cents earned in the year-ago quarter.
Health Net’s total revenue increased 37% year over year to approximately $3.8 billion, driven by Medicaid and commercial enrollment gains. However, revenues missed the Zacks Consensus Estimate of $4 billion.
The company’s Health plan services premium revenues came in at $3.6 billion, up 40.1% from the fourth quarter of 2013. Meanwhile, total health plan service expenses increased 36.3% to $3 billion. The company’s total expenses increased 37.8% year over year to $3.7 billion.
Western Region Operations: This segment posted revenues of $3.6 billion in the quarter, up almost 39% year over year. Net investment income declined about 4.3% year over year to $11.1 million. Health plan services expenses increased 36.4% year over year to $3 billion.
Total enrollment in the segment rose 29.1% year over year to 3.2 million members as of Dec 31, 2014. Western Region commercial enrollment increased 9.9% to 1.2 million members as of Dec 31, 2014. Enrollment under the company’s California health plans increased 26% year over year to 2.7 million members. Enrollment increased 12.7% to 0.28 million in Medicare Advantage plans. Medicaid enrollment also increased 50% to 1.7 million as of Dec 31, 2014.
Medical Care Ratio (MCR) for Health Net’s health plan services in the segment improved 240 basis points to 84.7% from 87.1% in the year-ago quarter. Commercial MCR improved to 84.6% from 87.4% in the prior-year quarter. The upside was driven by increased commercial enrollment, and improved performance in group accounts that helped cover expenses related to the health insurer fee. Medicare Advantage MCR deteriorated to 92.8% from 90.5% a year ago. Medicaid MCR improved to 80.0% from 82.7% in the year-ago quarter, driven by year-end adjustments associated with significant enrollment increases from new populations and other factors.
Government Contracts: Revenues from this segment increased to $159.6 million from $148.5 million in the fourth quarter of 2013. The segment’s expenses increased to $147.2 million from $124.6 million in the prior-year quarter.
Health Net’s 2014 operating income, which comprised combined net earnings from the Western Region Operations and Government Contracts segments, came in at $2.32 per share, higher than the company guided income. The figure also exceeded the Zacks Consensus Estimate of $2.30 and improved approximately 5% year over year due to higher enrollment.
Including one time items, net income for 2014 was $1.80 per share, lower than the year-ago income of $2.12.
The company’s total revenue increased 27% year over year to approximately $14 billion, driven by increased health plan services premiums and Government Contracts revenues. However, revenues for 2014 were lower than the company-guided figure.
As of Dec 31, 2014, Health Net had cash and investments of approximately $2.7 billion, up from $2.1 billion as of Dec 31, 2013. The company’s debt-to-capital ratio improved to 22.6% as of Dec 31, 2014 from 23.5% as of Dec 31, 2013.
Health Net’s operating cash flow totaled $776 million in 2014, comparing favorably with $95.8 million in the year-ago quarter. The improvement came on the back of strong operating results and business growth.
Total assets of Health Net were worth $5.4 billion as of Dec 31, 2014, higher than $3.9 billion as of Dec 31, 2013. Stockholder equity was $1.7 billion as of Dec 31, 2014 compared with $1.6 billion as of Dec 31, 2013.
Share Repurchase Update
Health Net bought back 3 million shares for $137.8 million in 2014. The board of directors of the company approved a $258 million increase in its share repurchase program in Dec 2014, bringing the total authorization to $400 million.
Additionally, from Jan 1, 2015 through Jan 31, 2015, Health Net repurchased shares worth $311 million.
Outlook for 2015
Health Net expects its 2015 net income per share guidance to a minimum of $2.70, which is not only higher than the earlier guidance of a minimum of $2.55 but also ahead of the figure reported in 2014. The company expects memberships and revenues to increase by 9% and 23%, respectively, and expense ratio to improve by 50 basis points. These along with stable MCRs in commercial, Medicare and Medicaid lines of businesses are expected to drive earnings.
However, operating income is expected in the range of $3.15–$3.25 per share, compared with the previous guidance of at least $3.15.
Total health plan membership is now expected at approximately 3.5 million, in line with the earlier guidance.
Health Net expects to generate revenues of $17.2 billion, down from $17.4 billion guided earlier.
Health Net revised its 2014 GA expense ratio guidance to 10.8% from 10.9% projected earlier.
Performance of Other Insurers
Cigna Corp. (CI) reported fourth-quarter 2014 operating net earnings of $1.69 per share, comfortably beating the Zacks Consensus Estimate of $1.65.
Health insurer Aetna Inc. (AET) reported fourth-quarter 2014 earnings of $1.22 per share, in line with the Zacks Consensus Estimate.
Anthem Inc. (ANTM) reported fourth-quarter 2014 adjusted net income of $1.73 per share, beating the Zacks Consensus Estimate of $1.72.
Health Net presently has a Zacks Rank #2 (Buy).
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