Sector Snap: Managed care down in mixed market

The contracts add four counties to Amerigroup's existing eight and about 19,000 members, boosting the company to a market leading position of 37 percent, or 79,000 members.

Oppenheimer analyst Carl McDonald said Amerigroup had the best showing in the contract bidding process, garnering more than UnitedHealth's 16,600 new members. These gains came at the expense of rivals WellCare Health Plans Inc. and Coventry Health Care Inc. and the local Blue Cross & Blue Shield program.

Stifel Nicolaus analyst Thomas A. Carroll said Amerigroup could see about a penny per share boost to earnings per share from the additional members. The contract awards boost UnitedHealth's county coverage to 17 from 13, but the additions will have minimal impact financially, he said.

McDonald has an "Outperform" rating on Amerigroup shares, while Carroll has a "Buy" rating.

Stifel's Carroll said WellCare came out with seven fewer counties, which could lower membership by 9,000 to a total 72,000 and earnings per share by a penny, but it still maintains a material footprint in the state.

"Despite the slight impact to earnings, WellCare's ongoing participation in the program should be viewed positively, in our opinion," Carroll wrote in a note to clients. The continuing contracts prove the company can keep winning business, despite its ongoing legal problems.

The analysts pointed out that profit margins for all of the insurers will be pressured, as Florida's budget deficit resulted in a freezing of the flat rate the state pays for each child covered under the Healthy Kids program to current levels, implying no rate increase for the new Oct. 1 contract. Given the spending environment, the companies had to bid quite competitively in order to win business and take market share.

In afternoon trading, Amerigroup shares lost 76 cents, or 3 percent, to $23.96, Wellcare dropped 78 cents to $48.35, UnitedHealth fell 49 cents to $30.25 and Coventry lost 86 cents, or 2 percent, to $41.30.