Why Health Net Shares Imploded

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 managed health-care services company Health Net (NYS: HNT) are in triage today, down as much as 30%, after the company's first-quarter report failed to impress.

So what: For the quarter, Health Net reported an adjusted profit of $0.10 (excluding one-time items) on a 16% drop in revenue to $2.83 billion. To say that these results missed would be an understatement. Wall Street had been looking for Health Net to report a profit of $0.60 on revenue of $2.89 billion. Furthermore, the company lowered its full-year EPS outlook from a previous range of $3.30-$3.40 to a new range of $2.35-$2.50. The Street had been expecting $3.38.

Now what: The primary reason for the huge earnings shortfall is a change in the way that Health Net accounts for claims, which required it to set aside considerably more money than it usually would have had to. Although that's somewhat forgivable, it doesn't mask the fact that revenue is down year over year and that management could have clearly been more up front about its intentions to change the way it accounts for claims. Until Health Net shows demonstrable growth steps moving forward, it's not a company that should be on anyone's radar.

Craving more input? Start by adding Health Net to your free and personalized watchlist so you can keep up on the latest news with the company.

At the time thisarticle was published Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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