MAMSI stock falls 22% after forecast HMO operator says 2nd-quarter earnings will trail estimates

Health care

August 05, 1998|By M. William Salganik | M. William Salganik,SUN STAFF

Stock in Mid Atlantic Medical Services Inc., a Rockville HMO operator, lost 22 percent of its value yesterday after the company warned that second-quarter earnings would be lower than estimates.

MAMSI said it expects to report earnings next week of 7 to 10 cents a share, well below analysts' consensus of 15 cents.

MAMSI shares closed at $5.9375 yesterday, down $1.6875. It was the first time they had closed below $6 in more than five years. As recently as May 13, the stock traded at $13.875 a share.

Stocks, including those of managed-care companies, suffered across the board yesterday, but MAMSI fell much more than any other stock in the Morgan Stanley Healthcare Payers Index, which is composed of 12 managed-care stocks. The index was down 4.3 percent for the day, to a 52-week low.

Paul Dillon, MAMSI's senior vice president and treasurer, blamed the disappointing earnings on higher-than-projected medical costs, especially those for specialist physicians. MAMSI controls costs for primary-care doctors by paying them a flat rate per patient per month, but specialists are paid on a fee-for-service basis, he said.

The increased cost might reflect the increasing popularity of MAMSI's point-of-service product, which allows patients more latitude in use of specialists than its traditional health maintenance organizations, Dillon said.

MAMSI has about half a million HMO members and about 250,000 subscribers to point-of-service plans.

"We aren't necessarily alarmed," Dillon said. "It's an earnings disappointment because we are not reporting the earnings Wall Street projected for us. But we are still a profitable company, and we think 1998 will be a good year compared to '97 and '96. Our recovery plan is progressing well."

MAMSI lost 6 cents a share in 1996 but earned 31 cents a share in 1997. For the past five quarters, it has posted better results than in the year-earlier quarters, and the second quarter will apparently continue that streak. MAMSI returned 6 cents a share in the second quarter last year.

Eleanor H. Kerns, an analyst with BT Alex. Brown who had been expecting earnings of 11 cents a share in the quarter, said the announcement was not a big surprise. She said MAMSI appeared to be "returning to seasonal patterns." The second quarter was the company's least profitable in four of the past five years.

Overall, Kerns said, she expects narrow margins in managed care to improve because premiums are at least keeping pace with the rising cost of medical care.

MAMSI's premium increases have been more than 7 percent, the company said.

MAMSI also announced that it has added $20 million for a stock buy-back program, bringing the total to $40 million. It has repurchased 653,500 shares for $8.4 million. George T. Jochum, chairman and chief executive, said that in addition to the company program, he will buy 50,000 shares.

Pub Date: 8/05/98

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