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On Apr 10, 2013, Zacks Investment Research upgraded Coventry Health Care Inc. to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

Coventry has strong fundamentals, including rising revenues, strong balance sheet, efficient capital deployment and stable ratings. Moreover, the company is improving its operating efficiencies through acquisitions and expansions.

The impending acquisition by Aetna Inc. (AET - Analyst Report) is also expected to be beneficial for the company. It will allow the company to cater to a larger market and open avenues for future partnerships to improve the quality and affordability of its services.

Further, improved sales along with the retention process implemented since 2009 has transformed Coventry’s Commercial Risk business into a profitable one. The acquisition of Mercy Health Plans and an increase in renewal rates also played an important role in the improvement. As a result, the Commercial Risk business has become an important source of revenue.

Moreover, with no debt repayment scheduled in the next couple of years, the company has ample scope for strategic acquisitions as well as share repurchases and dividend payouts. These positives are also driving the share price of Coventry, which hit a 52-week high of $49.12 on Apr 10.

Coventry reported positive earnings surprise in 3 of the 4 quarters in 2012, with an average beat of 12.2%. The Zacks Consensus Estimate for Coventry’s first quarter is currently pegged at 77 cents, representing a year-over-year increase of 24.7%.

Other Stocks to Consider

Other healthcare stocks worth considering are Health Net Inc. (HNT - Analyst Report) and Addus HomeCare Corporation (ADUS - Snapshot Report). Both these stocks carry a Zacks Rank #1 (Strong Buy).

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