Why Coventry Health Care Shares Sank

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of health insurer Coventry Health Care (NYS: CVH) plunged 11% on Friday after its quarterly results and outlook disappointed Wall Street.

So what: Coventry's first-quarter revenue jumped 21%, but a bottom-line miss -- adjusted EPS of $0.62 versus the consensus of $0.66 -- is triggering worries over its long-term profitability. While Coventry's overall Medicaid plans nearly doubled, higher costs associated with its low-income demographic are overshadowing that growth.

Now what: Looking ahead, management reaffirmed its 2012 EPS outlook of $3.10-$3.30 per share, versus Wall Street's view of $3.26. "We are optimistic about the future and our positioning to seize opportunities across our diversified businesses," Chairman and CEO Allen Wise reassured investors. With the stock now off about 20% from its 52-week high and trading at a forward P/E of eight, Coventry seems cheap enough to buy into that bullishness.

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At the time thisarticle was published Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Motley Fool newsletter services have recommended buying shares of Coventry. Try any of our Foolish newsletter services free for 30 days.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.

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