Health insurer Centene Corp (CNC.N) slashed its estimated 2012 profit as costs outstripped premium revenue on new Medicaid contracts in Kentucky and Texas, and because of a severe flu season, sending its shares down as much as 10 percent.
The insurer said it now estimated a 2012 profit of 10 cents to 20 cents per share, down from its October forecast of 56 cents to 66 cents per share.
"Centene continues to face volatility due to elevated new membership levels (35 percent of members) but the consistency should improve over time," said Oppenheimer & Co analyst Michael Wiederhorn, who maintained his "outperform" rating on the stock.
The company said it had discussed with the Texas state government the issues related to the Texas plan and had received written confirmation acknowledging the issues as well as a commitment to rectify them as soon as possible.
"We anticipate any such adjustments will be made in the first quarter of 2013," the company said in a statement.
Centene said its previously disclosed premium deficiency reserve, or loss estimate on unearned premiums, for Kentucky had increased, but it did not provide a number.
The company, which like its rivals has been hit by high unemployment and limited wage growth, recorded a deficiency reserve of $63 million for its Kentucky business for the third quarter ended September 30 and said it would stop offering Medicaid cover in the state.
Several other health insurers that have provided care under new Medicaid contracts in Texas and Kentucky have also experienced a high utilization rate that ate into profits.
Medicaid, jointly funded by the federal and state governments, is the U.S. health program for families and individuals with low incomes or disabilities.
Molina Healthcare Inc (MOH.N) has said the utilization of long-term care services in Texas far exceeded the assumptions used by the state to determine premium rates.
WellCare Health Plans Inc (WCG.N) cut its full-year earnings forecast after its Kentucky Medicaid plan performed below expectations.
Centene said on Friday it now expected 2013 earnings of $2.60 to $2.90 per share and premium and service revenue of $9.7 billion to $10.0 billion.
Analysts had expected earnings of $2.85 per share on revenue of $10.35 billion, according to Thomson Reuters I/B/E/S.
"We continue to believe that Centene's earnings will remain volatile, but with revenues expected to top $10 billion next year, we expect the earnings trajectory to improve in 2013 and beyond," Wiederhorn said.
Centene shares were down 8.8 percent at $41.01 on the New York Stock Exchange. Molina's shares were down 3.35 percent, while WellCare shares were down 5.8 percent in midday trading.
(Reporting by Esha Dey in Bangalore, Additional reporting by Zeba Siddiqui; Editing by Roshni Menon and Ted Kerr)