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Magellan Health Services Inc. (MGLN - Snapshot Report) reported net earnings of $37.0 million or $1.32 per share in the fourth quarter of 2012, surpassing the Zacks Consensus Estimate of $1.05. Net earnings also surpassed $29.7 million or $1.05 per share earned in the fourth quarter of 2011.

The strong results were driven by new businesses, lower cost of care management and improved administrative expense ratio.

Net revenues came in at $830.3 million, increasing 15.1% from $721.5 million in the year-ago quarter. However, net revenue lagged the Zacks Consensus Estimate of $843 million.

Segment profits surged 22.9% to $77.7 million from $63.2 million in the fourth quarter of 2011. Segment profit refers to earnings before income taxes and excludes stock compensation expense, depreciation and amortization, interest expense, interest income, gain on the sale of assets and special charges or benefits.

Total costs and expenses were $771.9 million in the reported quarter, increasing from $678.2 million in the year-ago quarter.

Full Year Highlights

For 2012, Magellan reported net earnings of $151.0 million or $5.42 per share, comfortably surpassing the Zacks Consensus Estimate of $4.41 million. Net income also outperformed $129.6 million or $4.17 per share recorded in the year-ago quarter.

Net revenues were $3.21 billion in 2012, increasing 14.6% over $2.80 billion in 2011. Total costs and expenses increased to $3.0 billion from $2.6 billion recorded last year. Segment profits amounted to $267.4 million in 2012, declining 1.1% from $270.4 million in 2011.

Operating cash flow amounted to $181.3 million in 2012, improving from $112.0 million in 2011.


Magellan increased its earnings per share (EPS) guidance for 2013 to $3.27–$3.92 from $3.22–$3.85 guided earlier on the back of lower shares outstanding. However, the guidance does not include any future repurchases.

Additionally, Magellan affirmed the net revenue guidance range of $3.56–$3.74 billion for the year ahead. Further, net income guidance was also affirmed at $91–$109 million and segment profit at $250–$270 million.

Results at Other HMOs

Coventry Health Care Inc. reported fourth-quarter 2012 operating earnings per share of 88 cents, which surpassed the Zacks Consensus Estimate of 67 cents as well as the prior-year earnings of 60 cents. Coventry reported net income of $119.3 million compared with $85.7 million in the prior-year quarter.

Another health maintenance organization (HMO), WellPoint Inc. (WLP - Analyst Report) reported fourth-quarter 2012 adjusted income of $1.03 per share, beating the Zacks Consensus Estimate of 95 cents. Adjusted income also surpassed the year-ago earnings of 99 cents per share by 4%.

UnitedHealth Group Inc. (UNH - Analyst Report) reported fourth-quarter 2012 earnings of $1.20 per share, in line with the Zacks Consensus Estimate. Earnings, however, increased 2.6% on a year-over-year basis.

Zacks Rank

Magellan currently carries a Zacks Rank #4 (Sell).

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