HealthSpring Inc. - Value

For the 4th quarter in a row, HealthSpring Inc. (HS) surprised on the Zacks Consensus Estimate by a big margin. The Medicare Advantage provider is cheap, trading at just 8.7x forward estimates despite hitting 52-week highs. Healthspring has the magical combination of being both a value and a growth stock.

On Oct 28, the company reported its third quarter results and beat by 15.9%. Earnings per share were 95 cents compared to the Zacks Consensus of 82 cents. In the last 4 quarters, the beats have averaged 39.6%.

HealthSpring is one of the larger Medicare Advantage providers, offering plans in 7 states. It also provides a national stand-alone Medicare prescription drug plan.

It's quarter was driven by membership growth as its Medicare Advantage membership climbed 6.1% to 198,055. Its stand-alone PDP membership jumped 34.6% to 409,239. There were also favorable medical expenses in its Medicare Advantage segment.

Premium revenue rose 9.7% to $712.7 million compared to a year ago. Total revenue also jumped by 9.9%.

Bravo Health Acquisition Proceeding

The company is on track to acquire Bravo Health Inc. HealthSpring believes the transaction will add between 45 and 55 cents to its 2011 earnings.

It will incur about 11 cents per share in transaction expenses in 2010.

Guidance Raised

HealthSpring is still bullish about the rest of the year. It raised its EPS guidance range to $3.20 to $3.30. Total revenue is expected between $2.95 billion and $3.00 billion.

Its Medicare Advantage membership is projected between 198,000 and 200,000 by the end of the year.

Zacks Consensus Estimates Climb

Not surprisingly, given the big beat and the raised guidance, the analysts have been raising full year estimates.

7 out of 11 estimates have been revised higher for 2010 pushing the Zacks Consensus to $3.24 from $3.13 in the last week. This is earnings growth of 34%.

Similarly, the 2011 Zacks Consensus rose to $3.35 from $3.16 in the last 7 days as well.

The Magical Combination of Growth and Value

This Zacks #1 Rank (strong buy) has a PEG ratio of just 0.9 which indicates that it has both growth and is cheap.

Its forward P/E is just 8.7, which is much cheaper than the S&P 500 which trades at nearly 15x and even its own peers, which average 11.2.

Its price-to-book ratio also indicates value at 1.5.

Shares have been on fire since it announced the Bravo Health acquisition, recently hitting a 3-year high.

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service. You can follow her at twitter.com/traceyryniec.

 
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