- The Washington Times - Monday, May 1, 2006

Coventry Health Care Inc. of Bethesda reported a 24 percent climb in first-quarter revenues despite declining share prices as the managed health care company gained more than 100,000 members since last year.

The company, the sixth largest U.S. health insurance provider, said net income rose 7.4 percent to $121 million (74 cents per diluted share) from $112.7 million (73 cents) a year ago.

In addition to adding 102,000 customers to its health plan business, Coventry enrolled 529,000 participants in its Medicare Part D prescription-drug benefit since the program took effect Jan. 1.

“In summary, business is very, very good,” Coventry Chief Executive Officer Dale B. Wolf told investors Friday during the company’s earnings conference call. “We’re following our plan to the T … and we see lots of opportunities to incrementally grow our business into 2007 utilizing our existing platform, our low-cost model.”

Coventry, which targets secondary regional markets, owns health plans in 14 states. The company provides commercial health benefits to 2.5 million members in addition to Medicare and Medicaid participants.

Shares of Coventry closed at $49.52 yesterday compared with $53.98 on March 31, the last day of the quarter.

After the earnings call, shares jumped nearly $4 from $45.70 on Thursday to $49.67 Friday.

“Shares have taken a beating along with the rest of the group,” Merrill Lynch analyst Doug Simpson said in a note to clients, adding that first-quarter results “should make people feel better about the story.”

Although the company’s earnings per share of 74 cents included a net loss of 6 cents for the quarter from costs associated with implementing Medicare Part D, the loss was 2 cents lower than management had expected and precedes what the company says will be a disproportionate gain later in the year. In the first quarter, the Part D program contributed nearly $181 million in revenues.

Mr. Simpson, whose company has an investment-banking relationship with Coventry, said management’s repurchase of 2.6 million shares for about $150 million this quarter was a wise use of cash flow.

“We believe that [Coventry] remains focused on [merger and acquisition] opportunities, but this quarter indicates that the company will not just let substantial cash simply build on the balance sheet but will capitalize on weakness in the shares with buybacks.”

Thomas A. Carroll, an analyst with Stifel, Nicolaus & Co. Inc. in Baltimore, which has an investment-banking relationship with Coventry, said he expects more repurchases throughout the year.

The company has authorization to buy 8.1 million more shares.

For the second quarter, the company expects diluted earnings per share between 80 cents and 82 cents.

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