Coventry Shares Drop On Earnings Forecast

Coventry Health Care reduced its projected earnings for the second time this year, dragging down its shares and those of fellow players in the health insurance industry yesterday.

Shares of Bethesda-based Coventry, a managed-care provider, plunged about 22 percent to close at $31.30. Shares of Amerigroup, UnitedHealth Group, Cigna and Health Net also dropped, falling 6 to 8 percent. Aetna and Humana attempted to soothe investors' fears by confirming their second-quarter and full-year profit projections. But their stocks also fell, 2 and 4 percent respectively.

Oppenheimer analyst Carl McDonald wrote that for the first time in years, these companies are not benefiting from slowing increases in medical costs.

"In other words, there is no longer any cushion in the spread between pricing and cost trends, so whenever something goes against the group, like a worse-than-expected flu season or falling interest rates, it shows up on the bottom line," he wrote.

On Wednesday evening, Coventry forecast second-quarter earnings of 55 to 57 cents a share, and full-year earnings of $3.65 to $3.75.

Three months ago, Coventry projected 2008 earnings per share of $4.39 to $4.50, down from a previous estimate of $4.42 to $4.58.

Shawn Guertin, Coventry's finance chief, said Wednesday that the company did not anticipate a backlog of costly claims surfacing this year in relation to Medicare Advantage, a program that allows elderly people to choose subsidized private plans. Guertin also cited higher first-quarter expenses from inpatient and outpatient care.

The company announced a hiring freeze and said it plans to raise prices next year.

"We tightened our belt, effective today on some staffing levels," Coventry chief executive Dale B. Wolf told analysts Wednesday night. "We're a little over 15,000 employees in this company, and more or less what we were asking people to do is not let that number grow through the year, as opposed to ripping the guts out of it."