Mid Atlantic Medical stock falls Lower earnings forecast causes shares to plunge nearly 17%

April 30, 1996|By Bill Atkinson | Bill Atkinson,SUN STAFF

Mid Atlantic Medical Services Inc.'s stock lost nearly 17 percent of its value yesterday, as shares were hammered on news that the company expects weaker-than-anticipated first-quarter earnings.

Shares of the Rockville-based health maintenance company hit a new low for the year of $19.75 a share, down $4 a share. Mid Atlantic Medical was the 10th most active stock on the New York Stock Exchange with 2.2 million shares traded.

The stock nose-dived after the large health management company said on Friday, after the close of the stock market, that it expected earnings of 23 cents to 26 cents a share, 28 percent to 36 percent below earnings for the same time a year ago. Analysts were expecting that the company would earn 36 cents to 38 cents a share in the first quarter.

"I thought that there was a chance that they could miss the projections, but not by that magnitude," said Eleanor H. Kerns, an analyst with Baltimore-based Alex. Brown Inc.

Robert M. Mains, an analyst with First Albany Corp., slashed his earnings estimates for the year to $1.10 a share from $1.50 a share, and he downgraded the company to a "neutral" from a "buy."

"Most analysts are surprised and disappointed by the news," he said.

Mid At-lantic Medical is blaming the projected decline on increased competition, rising medical prices, and a sudden jump in the number of members using its services, especially Medicaid patients in Virginia.

Michael Savage, a spokesman for Mid Atlantic Medical, declined to elaborate on the earnings projections because the company is still analyzing the data. He said earnings will be released next week.

"I truly think that the stock markets react emotionally and not rationally," Mr. Savage said.

Analysts said they were impressed with Mid Atlantic Medical's ability to continue expanding its enrollment base in the face of intense competition. The company's various health plans cover 1.6 million people as of March 31, up by 6.3 percent from Dec. 31.

But pricing pressures for medical services will continue to cut into earnings, the analysts said.

"I don't think these are the sort of problems that will dissipate quickly," Mr. Mains said. "The onus is on the company to demonstrate that they can improve on what has occurred here in the first quarter, that is that they can drive down the medical costs."

Another problem facing the company is that its market is tightly focused on Maryland, Virginia, North Carolina and Washington, so it has fewer places to generate revenues when times are tough, Ms. Kerns said.

"They don't have the geographic areas to draw on," Ms. Kerns said.

Pub Date: 4/30/96

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