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Coventry Health Care Inc. reported first-quarter 2013 operating earnings per share of $1.00, which surpassed the Zacks Consensus Estimate of 79 cents as well as the prior-year earnings of 62 cents.

Including the impact of Medicare Advantage Risk Adjustment Data Validation (RADV) prior period reserve release of 58 cents in the year-ago quarter, Coventry reported a net income of $135.4 million or $1.00 per share compared with $170.7 million or $1.20 per share in the prior-year quarter.

Operating revenues of Coventry in the reported quarter declined 4.7% year over year to $3.5 billion, lagging the Zacks Consensus Estimate of $3.68 billion. Managed care premiums declined 4.4% year over year to $3.24 billion, while revenues from management services declined 7.2% to $283.6 million.

Coventry’s total operating expenses declined 3.3% year over year to $3.30 billion. Additionally, medical costs, the major component of operating expenses, declined to $2.69 billion from $2.81 billion in the prior-year quarter.

Likewise, Coventry’s cost of sales declined to $59.49 million from $67.95 million in the first quarter of 2012. However, selling, general and administrative (SG&A) expenses increased to $520.3 million from $502.9 million recorded a year ago, while depreciation and amortization (D&A) expenses increased to $37.6 million from $36.3 million in the year-ago quarter.

Total membership of Coventry witnessed a decline of 90,000 from the first quarter of 2012 to 5,172,000 in the reported quarter.

Commercial Risk: The Commercial Risk membership for the reported quarter was 2,182,000, down 22,000 members from the prior-year quarter. Commercial Risk Medical Loss Ratio (MLR) in the reported quarter came in at 77.9%.

Medicare Advantage Coordinated Care Plans (MA-CCP): Coventry reported MA-CCP membership of 309,000, showing an increase of 59,000 members from the first quarter of 2012. The MA-CCP MLR came in at 84.6%.

Medicare Part D: Medicare Part D membership stood at 1,450,000 at the end of the reported quarter, down 8,000 members from the prior-year quarter. The Medicare Part D MLR in the quarter came in at 93.4%.

Medicaid: The Medicaid membership at the end of the reported quarter stood at 892,000, down 32,000 members over the first quarter of 2012. The Medicaid MLR in the quarter came in at 86.4%.

Balance Sheet and Capital Structure

Coventry ended the reported quarter with approximately $1.53 billion in cash and cash equivalents, up from $1.40 billion at the end of 2012. Deployable cash at the parent company stood at $950 million at the end of Mar 2013. Operating cash flow totaled $222.2 million in the reported quarter.

As of Mar 31, 2013, Coventry had total assets of $8.96 billion and shareholders’ equity of $4.84 billion. The company exited the reported quarter with $1.59 billion in long-term debt, in line with 2012 end.

Results at Other HMOs

Another health maintenance organization (HMO), WellPoint Inc. reported first-quarter 2013 adjusted income of $2.94 per share, beating the Zacks Consensus Estimate of $2.37. Adjusted income also surpassed the year-ago earnings of $2.34 per share by 25.6%.

Health Net Inc.’s first-quarter 2013 operating income came in at $8.2 million or 10 cents per share, rebounding from the year-ago loss of $8.1 million or 10 cents per share. Operating income, however, lagged the Zacks Consensus Estimate of 41 cents per share.

UnitedHealth Group Inc. reported first-quarter 2013 earnings of $1.16 per share, in line with the Zacks Consensus Estimate. Earnings, however, declined 11.4% on a year-over-year basis.

Zacks Rank

Coventry carries a Zacks Rank #2 (Buy).

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