On Mar 8, Zacks Investment Research downgraded Universal American Corp to a Zacks Rank #5 (Strong Sell) due to its weakening bottom line.
Why the Downgrade?
Universal American witnessed downward estimate revisions following weak fourth-quarter 2013 results reported on Mar 5, 2014. The results included a huge negative surprise of 150.0%. With this, the company delivered negative earnings surprises in the last three consecutive quarters with an average miss of 159.9%. Shares of this life insurer lost nearly 4.9% since the company reported disappointing results on Mar 5. Given its current quarter Earnings ESP of -14.3%, we feel the company is slated for difficult times going ahead.
Universal American reported fourth-quarter net operating loss per share of 5 cents. Results deteriorated significantly from the year-ago quarter earnings of 16 cents and also missed the Zacks Consensus Estimate of a loss of 2 cents.
The underperformance by Universal American was largely due to a decline in its revenues along with an increase in expenses. Lower net investment income as well as other income dragged the top line, which declined 2.7% year over year. On the other hand, a $97.7 million year-over-year increase in asset impairment charges associated with APS Healthcare caused expenses to escalate, which in turn, led to an operating loss.
Universal American’s attempts to focus primarily on Medicare Advantage markets are yet to show any desired positive results. The acquisition of APS healthcare did not contribute to the results as per expectation. Sluggish business renewals and lack of growth catalyst in the intensely competitive healthcare industry further add to the company’s woes.
Over the last 7 days, the Zacks Consensus Estimate for 2014 slipped 9.5% to 21 cents per share as 3 out of 7 estimates were revised downwards. Moreover, the estimate for 2015 decreased 14.6% to 35 cents over the same period.
Other Insurers worth a Look
We prefer to avoid Universal American for the time being. However, investors interested in the life insurance industry may consider better-ranked stocks like Protective Life Corporation , Primerica, Inc. (PRI - Free Report) and Lincoln National Corporation (LNC - Free Report) . All these stocks carry a Zacks Rank #2 (Buy).