FOUNDATION HEALTH: Slipping Enrollment Worries Investors
Wall Street has doubled the stock price of Foundation Health Systems in recent weeks on news of a financial turnaround, but it seems the Woodland Hills-based company hasn't escaped the bears yet. While third-quarter cash flow totalling $112 million has "alleviated a liquidity crunch," some "savvy investors are hinting that the company's fourth-quarter earnings will be several cents below already-slimmed-down consensus earnings estimates of 25 cents a share." But even more troubling, the Wall Street Journal reports, is that Foundation's core California business is seeing an unexpected dip in enrollment, raising fears that the company is burdened with "a higher cost structure than that of [its] rivals." A Foundation spokesperson said the weak enrollment is "a consequence of being very disciplined about pricing. We had to walk away from business because we didn't think it was priced adequately." Investors had hoped that problems at Kaiser Permanente would result in enrollee pick-ups by Foundation. Volpe Brown Whelan analyst Edward Keaney said that "Foundation's crown jewel, Health Net, is 'less competitive in the large-group segment than it has been in the past,' and is losing ground to PacifiCare Health Systems and WellPoint Health Networks." In Foundation's favor, according to Oracle Partners analyst Larry Feinberg, is that "turnaround chieftain" Jay Gellert is perceived as a "straight shooter, aggressive and really driven" (Scism/Rundle, 12/7). Click here for past coverage of Foundation Health and it Health Net HMO.This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.