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PacifiCare Shares Rise 35% on Profit News

February 08, 2001|From Bloomberg News

PacifiCare Health Systems Inc. shares rose 35% after the No. 1 operator of Medicare health plans beat fourth-quarter profit estimates and raised estimates for this year.

The company's shares rose $8.75 to close at $33.50 on Nasdaq. The shares led the Morgan Stanley HMO index, which rose 6.8%.

Santa Ana-based PacifiCare said after U.S. markets closed Tuesday that its profit fell 82%, though net income of 35 cents a share beat the 20-cent average estimate of analysts surveyed by First Call/Thomson Financial. Chief Executive Howard Phanstiel said PacifiCare expects to earn $2.94 a share this year, with earnings-per-share growth of 15% to 20% in 2002.

"I'm very skeptical," said Kathleen Lamb of Credit Suisse First Boston Inc. "It's a total about-face from what they had said. They probably don't have the infrastructure to do what they want to do."

The average analyst's estimate for 2001 was 87 cents, though estimates ranged from a loss of $2.18 a share to a profit of $2.30.

Lehman Bros. analyst Lawrence Marsh raised his target price on the stock to $45 from $35 after the company issued its estimate.

In a conference call with investors and analysts, PacifiCare said a payment increase from Medicare would add $40 million to $50 million to earnings this year. The company said it expects $179 million in additional revenue from Medicare after March 1, allowing it to better cover rising costs for medical care and prescription drugs.

PacifiCare said it will focus this year on leaving unprofitable markets, controlling medical costs and raising premiums for its health maintenance organizations.

The company also said it intends to add a preferred-provider organization that would include services such as women's health, offer supplemental coverage for Medicare customers dropped by Medicare HMOs and expand a unit that manages pharmacy benefits. The pharmacy unit could participate in a Medicare prescription drug benefit plan if Congress passes one, the company said.

Lamb said it will be difficult for PacifiCare to control costs and transform itself at the same time.

"They were saying two weeks ago they expected a tough year," she said. "I think what they're doing is very challenging."

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