HMO, Is It Still A Good Investment?
HMO group had severe pull back these last couple of days as result of lack luster guidance from Coventry Health Care. Its guidance for the 4th quarter is 81 to 82 cents and the consensus was 82 cents. The lower guidance is due to Hurricane Katrina. It operates local health plan with 76,000 members with 63,000 in the New Orleans area. This appears to be a problem for Coventry only.
This morning PacifiCare and Aetna released great earnings number and both companies raise guidance for the year. The HMO group recovering some of the loss from the last two days. Obviously this last two day sell off is more about profit taking than anything else and expect the group to continue to move higher as the medicare drug reimbursement plan kick in next year.
I’m bullish on the group because they are able to dictate price increase and manging cost efficiently. Rising health care cost may be bad for the public but is great for the HMO companies and I don’t see any reform on the horizon until probably the next presidential election. I expect the group to do well in 2006.
It's not when you buy. It's when you sell!
