AET and OXHP are both good stocks. Not so sure about UNH. Here are the research reports from DLJ site:
AETNA (AET: $66.94)# 09/28/99
Investor Conference Does Not Resolve Pru Questions
Earnings Per Share Old New P/E Ratios
(FY:Dec.) 2000E $5.35 $ 12.5
1999E 4.55 14.7
1998A 3.79 17.7
Rating: MARKET PERF. Change: None 12-Mo. Target: $96
Aetna stock has been very weak lately owing to pressure on the sector overall, but also because of investor anxiety regarding the company's recent acquisition of the loss-generating Prudential Health Plan assets. Yesterday's company-sponsored meeting was an opportunity for management to instill investor confidence in the outlook. While management provided some projections regarding the erasure of the Pru losses, investors left the forum disappointed that the company did not provide sufficient detail regarding the projections to independently confirm the prospects. Also, Aetna management did not endorse upping estimates for Pru accretion in 2000 (as had been previously signaled). While we are encouraged by the company's EPS progress thus far in 1999, we believe there to be meaningful Pru financial and operational risk in 2000, and considerably more into 2001 as Pru's financial protection expires (see our original 12/11/98 note for further detail), and as the integration begins in earnest. We continue our marketperform rating. (M.M)
AETNA (AET: $83.75)# 07/30/1999
Q2 EPS Track Expections, A Plus
Earnings Per Share Old New P/E Ratios
(FY:Dec.) 2000E $5.35 $ 15.7
1999E 4.55 18.4
1998A 3.79 22.1
Rating: MARKET PERF. Change: None 12-Mo. Target: $96
Aetna reported Q2 EPS that was substantially as expected on all key line items and segment details. This was a positive departure from Aetna's historic problems with shortfalls in EPS level and/or quality, and represents the second consecutive quarterly report from Aetna that was largely issue-free. Despite a moderate rise in MLR, the operating income contribution from health care operations was roughly flat with Q1 and up 28% year-over-year. International operating profits were also robust, rising 15% year-over-year. And, operating earnings from retirement services rose 18% year-over-year (excluding the divested individual life business). All in, it was a solid quarter, with the only unexpected issue being a decline in the days claims payable in reserve (to 56.5 days from Q1's 60), which could be interpreted as lower earnings quality (reversing reserves to produce earnings) but was explained by management as stemming from reductions in claims backlog.
OXFORD HEALTH PLANS (OXHP: $17.63)@* 09/17/99
Upbeat Presentation at DLJ Conference
Earnings Per Share Old New P/E Ratios
(FY:Dec.) 2000E $1.10 $ 16.0
1999E 0.18 97.9
1998A (4.10) -4.3
Rating: TOP PICK Change: None 12-Mo. Target: $27
We continue to rate Oxford Health Plans Top Pick based on strong turnaround momentum that should drive the stock higher; and exceptional brand franchise that could result in a premium take-out value for the company as the financial recovery proceeds. Dr. Payson's presentation at the DLJ Growth Stock Conference detailed the ongoing turnaround progress and laid out some new pricing and cost control initiatives that should bolster 2000 prospects. This confirms our belief that Oxford is now at an inflection point, with EPS and cash flow poised to turn nicely positive. Investors attending the session seemed quite impressed with the investment opportunity, and the lively Q&A suggested keen interest in the stock. The earnings turnaround coupled with widening investor interest should provide nice support for the stock.
UNITEDHEALTH GROUP (UNH: $61.69)# 09/17/99
Upbeat Investor Conference Highlights Continued Improvement in Health Plans Business
Earnings Per Share Old New P/E Ratios
(FY:Dec.) 2000E $3.50 $ 17.6
1999E 3.05 3.08 20.0
1998A 2.62 23.5
Rating: MARKET PERF. Change: None 12-Mo. Target: $70
UnitedHealth Group hosted its annual investors' day in which it thoroughly detailed each operating segment and the progress that has been made since the company's realignment. Though there was not an abundance of new information since the company's Q2 earnings release, we came away with a strong sense that earnings for the balance of the year are in place. Specifically, the core health plan business (which comprises about 60% of operating income) appears to be exceeding forecasts. We are therefore raising our 1999 EPS estimate by $0.03 to reflect slightly lower MLR assumptions. Management's guidance for 2000 EPS provided at the conference corresponds to $3.55, $0.05 higher than our forecast; but for now we are leaving our 2000 projection unchanged to reflect the potential for rising medical costs and/or sluggish enrollment. While we are encouraged by the company's progress in 1999, we continue to sit on the sidelines with respect to the shares due to our neutral outlook for the industry. Although UNH has done a good job containing medical costs in 1999, we have less clarity with respect to 2000, owing to the uncertainty regarding the premium/cost dynamic: rates and costs are in a game of leap-frog that is likely to yield flattish industry-wide margins, with considerable company-specific variance. (11:30AM EDT) |
