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Coventry Health Care, Inc. (CVH) reported fourth quarter fiscal 2009 earnings of 74 cents per share from continuing operations, which was above the Zacks Consensus Estimate of 56 cents. The company earned 55 cents from continuing operations in the year-ago quarter.

For fiscal 2009, Coventry earned $2.14 from continuing operations which was also above the Zacks Consensus Estimate of $2.03. The company earned $2.41 from continuing operations in fiscal 2008.

Total operating revenues for the quarter climbed to $3.43 billion from $2.98 billion in the comparable period. Managed care premiums rose 16.8% to $3.12 billion, while revenues from management services increased marginally to $306.6 million from $305.3 million in the year-ago quarter. Total membership came in at 5.27 million at the end of the fourth quarter, up from 4.62 million at the end of the same period last year.

For the quarter, Coventry reported continued growth in Medicare products. Medicare Coordinated Care Product (CCP) membership grew 36% from last year. Commercial group risk premium yields in the reported quarter climbed to $306.75 per member per month, up 5.9% from the year-ago quarter. As of Dec 31, 2009, Medicare Part D membership stood at 1.68 million, a rise of 752,000 members from the prior year.

Total operating expenses for the quarter came in at $3.24 billion, up 13.5% from the year ago quarter. Medical costs, the major operating expense component, rose to $2.56 billion from $2.24 billion last year. Health plan commercial group risk medical loss ratio (MLR) came in at 82.9% for the quarter. The Medicare Advantage MLR came in at 89.4% compared to 90.9% a year ago.

Coventry's Medicare Advantage plans for the elderly had 515,000 members as of Dec 31, 2009 which reflected an increase of 135,000 members from the end of 2008. Medicare Advantage CCP membership came in at 186,000 which reflected an increase of 49,000 members from the prior year.

Coventry ended the quarter with approximately $1.42 billion cash and cash equivalents. Furthermore, Coventry exited the quarter with $1.59 billion in long-term debt. The company repaid of $110 million of debt during the quarter.

Outlook for 2010

For fiscal 2010, Coventry expects to earn between $2.10 and $2.25 on revenue between $10.86 billion and $11.37 billion, compared to $13.9 billion in 2009. The medical loss ratio (the proportion of premium revenue spent on providing medical care) is expected between 82.7% and 83.5% in 2010, compared to 85.4% in 2009. The Zacks Consensus Estimate for 2010 is $2.23.

Estimate Revisions Trend

For the next quarter, only 2 of the 9 analysts covering the stock raised earnings estimates over the last 30 days while none moved in the opposite direction. This means that majority of the analysts have not revised their earnings estimates. The lack of directional pressure for the next quarter justifies our short-term recommendation reflected by Zacks Rank #3 (Hold).

Furthermore, over the last 30 days, only 1 of the 18 analysts covering the stock raised estimates for full year 2010, while none moved in the opposite direction. Furthermore, the magnitude of the revision is negligible. The lack of strength as well as magnitude in the revision justifies our long-term recommendation of "Neutral” on the stock.

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W.R. Berkley’s (WRB) fourth quarter earnings of 71 cents per share were ahead of the Zacks Consensus Estimate of 68 cents. In the year-ago quarter, the company had reported earnings of 74 cents per share. Earnings for the reported quarter were helped by an increase in net investment income, partially offset by lower premiums earned.

Net income was $134.3 million or 81 cents, compared with $40.3 million or 24 cents in the prior-year quarter. The results benefited from investment gains of $13.3 million coupled with an income of $3.3 million from investment funds.

Net premium written declined 6.8% on a year-over-year basis to $828.4 million. Premium compression was led by lower business written in Regional, Alternative and Specialty segments. W.R. Berkley has been experiencing pressure on net premiums written since the fourth quarter of 2006.

New business volume moderated during the reported quarter. These declines have been the result of increased competition, downward pressure on pricing and a disciplined underwriting approach.

Net investment income increased 24.3% year-over-year to $141.2 million. Net invested assets increased to $13.7 billion from $12.5 billion in the prior-year quarter.

Combined ratio remained unchanged at 92.6% on a sequential basis, though it deteriorated 110 basis points year-over-year to 94.2%.

Berkley enjoys a strong balance sheet and a lack of material exposure from legacy issues such as asbestos and environmental liabilities, which has resulted in additional visibility to the company’s earnings stream in the recent years. Operating return on equity improved during the quarter to 15.5% from 13.8% in the prior-year period.

The company’s disciplined underwriting culture and conservative investment philosophy have led to book value growth to $22.97 per share, compared to $18.87 per share at the end of 2008. 

Berkley also increased its share repurchase authorization by 10 million shares, to 11.5 million shares. The company has been making share repurchases from time to time, displaying prudent capital management.

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Universal Forest Products, Inc. (UFPI) announced fourth quarter and full year 2009 results. During the quarter, Universal Forest posted a net loss of $0.66 million or $0.03 per share compared to a net loss of $0.79 million or $0.04 in the fourth quarter of 2008. The reported EPS exactly matched with the Zacks Consensus Estimate of a net loss of $0.03.

Full-year 2009 net earnings were $24.3 million or $1.25 per share versus net earnings of $4.3 million, or $0.23 in 2008. However, EPS was slightly below the Zacks Consensus Estimate of $1.29. The company’s continued focus on eliminating waste and critical basics like inventory and receivables have proven to be the right strategy in fragile times.

During the fourth quarter of 2009, net sales were $338.6 million, down from $423.7 million in the year-ago quarter. Full-year net sales were $1.7 billion versus $2.2 billion in 2008. The decline in net sales was due to a 12% drop in the average composite lumber price compared to 2008.

The Do-It-Yourself (DIY) segment reported net sales of $130.7 million in the quarter, a decrease of 14.8% from the same period of 2008. Annual gross DIY sales were $805.0 million, a decrease of 12.4% from 2008.

During the quarter, sales in the Industrial packaging and components were $111.6 million, down 8.5% from the same period in 2008. For the year, sales were $479.3 million reflecting a decrease of 20.0% from 2008.

Site-built construction reported net sales of $54.2 million in the fourth quarter, down 42.4% from the same period of 2008. During full year 2009, sales were $244.1 million, down 46% from 2008.

Manufactured housing sales in the quarter were $48.9 million, down from 15.2% from the year-ago quarter. Annual sales were $183.9 million, a decline of 39.4% from 2008.

To cope with a difficult housing environment, UFPI has closed a number of facilities in the U.S. and Canada and sold some others. The company expects to improve productivity by 15%. By 2012, UFPI targets to improve its profitability by 300 bps through cost reductions and productivity improvements.

The company is seeing positive results in the transition to a value-added producer from a pure commodity supplier. The former carries higher margins, entails less competition and increases the attractiveness to customers looking for a full product portfolio. In 2004, value-added product sales comprised 50.7% of total sales. Currently, value-added products sales comprise more than 60% of the company’s total sales.  

Universal Forest Products is focusing more on expanding its industrial business into markets where it currently doesn’t have a major presence. This will make the company much more diverse regionally. The company aims to achieve sales of $3 billion by the year 2012.

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Biogen Idec Inc. (BIIB) reported fourth quarter earnings per share of $1.18, beating the Zacks Consensus Estimate of $1.05. The company reported earnings of 91 cents in the year-ago period.

Performance was driven by higher revenues and lower expenses. Revenues increased 5% to $1.1 billion, with Tysabri and Avonex being the primary growth drivers.

For the full year, the company reported earnings of $4.03, well above the Zacks Consensus Estimate of $3.93 and the year-ago earnings of $3.58. Full-year revenues increased 7% to $4.4 billion.

Revenue by Major Products

Fourth quarter Tysabri revenues came in at $216 million, up 39% from the prior period. Global in-market net sales of Tysabri, which is partnered with Elan Corp. (ELN), came in at $296 million (up 37%) in the fourth quarter of 2009. Tysabri global sales increased 30% to $1.1 billion in 2009 (US - $509 million; ROW [Rest of the World] - $551 million).

Despite carrying a black-box warning for the risk of progressive multifocal leukoencephalopathy (PML) and other cautionary language, Tysabri continued to see an increase in patients. Biogen estimates that as of the end of Dec 2009, about 48,800 patients were on commercial and clinical Tysabri therapy worldwide. This represents an increase from the 46,200 patients reported by the company in the third quarter of 2009.

However, we note that the number of new patients adopting Tysabri has been declining over the past few quarters. The US Food and Drug Administration (FDA) recently announced that the Tysabri label should contain stronger language regarding the incidence of PML associated with increased use of the drug. With Tysabri being an important growth driver for Biogen, we remain concerned that an increase in the number of PML cases associated with its use could lead to a slowdown in Tysabri sales going forward.

Meanwhile, Biogen’s lead multiple sclerosis (MS) product Avonex posted fourth quarter sales of $596 million (up 5%). Full-year sales came in at $2.3 billion, up 5%. Rituxan revenues declined 3% to $1.1 billion for the year due to the expiration of royalties on sales outside the U.S. Rituxan revenues fell 15% to $257 million in the fourth quarter. Biogen is looking to expand Rituxan's label to revive growth.

Revenues from other products increased 40% to $14 million in the fourth quarter of 2009. For the full year, revenues from other products increased 10% to $54 million. While fourth quarter royalties increased 41.4% to $41 million, full-year royalties increased 6.9% to $124 million.

2010 Outlook Exceeds Expectations

Biogen Idec provided better than expected earnings guidance for 2010. The company expects to earn more than $4.55 per share on revenue growth in the mid-single digits. This is well above the current Zacks Consensus Estimate of $4.44. Biogen expects core operating expense growth in the low single digits. While R&D is expected to be 24% - 27% of total revenue, SG&A is expected to be 20% - 22% of total revenue. Biogen shares were up 1.9% following the release of fourth quarter results.

Biogen continued to repurchase shares during the fourth quarter. About 14.8 million shares of stock were repurchased at a total cost of $694 million in the reported quarter. An additional 5.4 million shares (for $289 million) were repurchased in the first quarter of 2010 as well.

Biogen has $288 million remaining under its Oct 2009 program. The company exited the year with $2.5 billion in cash, cash equivalents and marketable securities. The repurchase of shares should help boost the bottom-line.

Our Expectations

We currently have a Neutral recommendation on Biogen. Key products Avonex and Tysabri continue to contribute significantly to sales, and we expect Biogen to maintain its leading position in the multiple sclerosis market going forward. The company is also working on building its pipeline through acquisitions and in-licensing deals, which should contribute to long-term growth.

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Becton, Dickinson and Company (BDX) recently started expanding the recall of its catheters as a result of a manufacturing problem that could cause fatal embolisms or blood leakage. Becton is recalling its defective Q-Syte Luer Access Devices and Nexiva Closed IV Catheter Systems. The company started the initial recall of these products on Oct 28, 2009.

Becton is in constant touch with the U.S. Food and Drug Administration (FDA) and worldwide health agencies to coordinate the recall. The Nexiva products have two Q-Syte devices within the package that could be affected. The Q-Syte devices are used with intravenous systems.

Becton has already recalled roughly 2.8 million Q-Syte and 2.9 million Nexiva units containing 5 million Q-Syte devices. Becton, Dickinson has identified the root cause of the manufacturing problem and has corrected it, according to the company.

We think that the product recall will have a minimal impact on Becton, Dickinson’s bottom-line. The company recently reported strong first quarter fiscal 2010 results. Earnings per share of $1.30 easily beat the Zacks Consensus Estimate of $1.20 and the year-ago earnings of $1.26. Becton also reported an expansion in its top-line with growth across all major business segments.

Becton, Dickinson and Company develops, manufactures and markets medical devices, supplies, laboratory equipment and diagnostic products globally. The company is a world leader in safety needle products. Becton competes with players like Baxter International Inc. (BAX), Johnson & Johnson (JNJ) and Abbott Laboratories (ABT).

Presently, we have a Neutral recommendation on Becton.

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Oil and natural gas firm Comstock Resources Inc. (CRK) reported weaker-than-expected fourth quarter results as low natural gas prices more than offset a rise in production volumes. The loss from operations came in at 15 cents per share, much wider than the Zacks Consensus Estimate of 7 cents. In the year-ago period, the company earned 22 cents per share (adjusted for after-tax impairment charges). Oil and gas sales were down 9.9% year-over-year to $90.2 million.

Estimate Surprise Trend

It was the company’s third negative earnings surprise in the past four quarters. Comstock has performed poorly during this period, with its average earnings surprise being -48.4%. This implies that the company has missed the Zacks Consensus Estimate by 48.4% over the last four quarters.

Volume Growth

The company’s operational performance during the quarter continued to reflect the success of its enhanced onshore drilling programs and property acquisitions, resulting in quarterly volume growth of 26.7% year-over-year to 19.1 billion cubic feet equivalent (Bcfe), of which 94% was natural gas. Production in the East Texas/North Louisiana operating region increased 55.8% to 13.0 Bcfe, while production from the South Texas properties came in at 4.6 Bcfe, an approximately 10.2% decrease from the year-earlier level.

Natural Gas Realizations Down

Average price realization per thousand cubic feet equivalent (Mcfe) was $4.73, down 28.9% from the year-ago quarter. Average oil price realization was $64.76 per barrel and average natural gas realization was $4.34 per Mcf, compared to $52.16 per barrel and $6.44 per Mcf, respectively, in the year-earlier quarter.
 
Costs & Expenses

Oil and gas operating costs were down 9.2% from the fourth quarter of 2008 to $18.7 million. However, overall operating expenses increased 9.9% year-over-year to $92.1 million.

Cash Flow & EBITDAX

Comstock generated operating cash flow from continuing operations of $67.5 million, a decrease of 15.0% from the year-earlier period. Quarterly EBITDAX (earnings before interest, taxes, depreciation, depletion, amortization, exploration expense, and other non-cash expenses) decreased 10.0% year-over-year to $64.4 million.

Capital Expenditure

During the fourth quarter of 2009, Comstock spent $90.9 million on its exploration and development activities. For 2010, management guided towards drilling spending budget of $385 million. Of the 2010 spending budget, 96% is dedicated to the company’s East Texas/North Louisiana operating region. The 2010 drilling program consists of approximately 59 wells (42.6 net). Of these, 56 wells (41.1 net) are horizontal Haynesville shale wells.

Balance Sheet

At the end of 2009, Comstock had approximately $90.5 million in cash and cash equivalents and $470.8 million in long-term debt. Debt-to-capitalization at the end of the quarter was 30.6%.

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Molson Coors Brewing Co.’s (TAP) second-quarter earnings came in at $222.1 million, compared to $93.7 million in the year-ago quarter. Excluding certain one-time items, pro forma earnings came in at $1.02 per share, which missed the Zacks Consensus Estimate of $1.10 per share derived from 9 covering analysts. The worse-than-expected results were primarily caused by sluggish volumes and cost inflation in the U.S. and the U.K.

Net sales recorded a growth of 11.0% to $820.8 million from $739.2 million in the year-ago quarter, primarily due to positive pricing and favorable mix. In terms of segments, sales grew 8.9% to $442.8 million in Canada, 13.6% in the U.K. to $358.6 million and 15.5% in the international segment to $19.4 million.

Overall beer volumes slipped 4.0% year-over-year to 12.11 million hectoliters. The company’s Canadian segment volumes remained essentially flat at 2.099 million hectoliters, while the U.K. segment recorded a decrease of 9.3% to 2.462 million hectoliters.

Molson Coors’ gross margin improved by 260 bps year-over-year to 42.1%, mainly due to favorable mix and lower commodity and packaging-related costs in Canada. However, marketing, general and administrative expenses rose by 25.8% to $247.5 million, primarily due to higher compensation and brand investments. Accordingly, operating margin declined by 310 bps to 16.6% from 19.7% in the year-ago quarter.

Molson Coors ended the quarter with cash and cash equivalents of $723.2 million, compared to $390.9 million in the year-ago period. During 2009, the company deployed $170.4 million towards dividend payments, $124.7 million towards capital expenditure and $66.3 million towards investment in the MillerCoors JV.

Looking forward, Molson Coors expects volumes to remain challenging, particularly in the first-half of 2010 amid weak consumer demand. The Zacks Consensus Estimate on the company’s earnings for 2010 is currently pegged at $3.71 per share, which reduced by 3 cents over the past month as 5 of 10 covering analysts lowered expectations.

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