HEALTH NET SHARES FALL DESPITE PROFITS.

Byline: GREGORY J. WILCOX Staff Writer

WOODLAND HILLS -- Shares of Health Net Inc. slipped Thursday after the insurer posted higher second quarter profits and sales from a year ago but just under Wall Street's target.

And analysts still think the company is an acquisition target.

For the April through June period, the Woodland Hills-based company earned $77 million, equal to 65 cents per share, up from a profit of $53.6 million, 47 cents a share, in the like period a year ago.

Revenues increased to $3.27 billion from $3.02 billion.

The consensus of analysts polled by Thomson First Call was for earnings per share of 66 cents on revenues of $3.3 billion, according to the Web site Marketwatch.com.

Health Net shares closed at $44.10, down 70 cents, or 1.56 percent, and dipped as low as $41.66 during the day.

During a conference call, company executives said they were pleased with the results and future prospects.

``As I look around the company, I'm encouraged at every turn,'' said Jay Gellert, the company's president and chief executive officer. ``It was a good solid quarter consistent with our expectations.''

For the second quarter:

At quarter's end total health plan enrollment was approximately 3.4 million, an increase of 22,000 compared with the first quarter of 2006. It's the company's first sequential health plan enrollment increase in more than two years.

The health plan medical care ratio improved 83.3 percent in the second quarter verses 84.6 percent in the year-ago period. This is the measure of health plan costs as a percentage of revenue.

The company also said it expects earnings per share this year to be between $3 and $3.05. That's better than the previous full-year low-end estimate of $2.90 but 5 cents under the high-end.

Thomas Allen Carroll, managing director of Health Services Research-Managed Care at Stifel Nicolaus Capital Markets in St. Louis, said in a note that he's lowered his full-year per-share target a nickel to $3.05.

He also noted that the enrollment was driven by commercial, Medicare and Medicaid.

``Medicare and Medicaid should drive enrollment growth, with flat-to-slight commercial growth, in our opinion.''

In another note, Merrill Lynch analyst Doug Simpson wrote that the challenge for Health Net is to grow the platform while maintaining pricing discipline in its very competitive major markets in California and the Northeast, Marketwatch.com said.

The consensus, he said, is that Health Net will eventually be acquired, ``but there is still considerable debate about (the) price and timing of an offer, especially given jittery sentiment toward potential acquirers.''

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