Zacks Industry Rank Analysis Highlights: AmeriGroup, Cigna, Health Net, Humana and WellCare Health.

CHICAGO -- Zacks.com releases the latest Zacks Industry Rank. Stocks featured in this week's analysis include AmeriGroup (NYSE: AGP), Cigna (NYSE: CI), Health Net (NYSE: HNT), Humana (NYSE: HUM) and WellCare Health (NYSE: WCG). To see the Zacks Industry Rank and the trend in earnings estimates revisions for all 208 industry groups, visit http://at.zacks.com/?id=3154.

Zacks Industry Rank Analysis is written by Charles Rotblut, CFA, Senior Market Analyst for Zacks.com.

On Tuesday, the National Health Statistics Group at the Centers for Medicare and Medicaid Services predicted that spending on health care would double by 2016 to $4.1 trillion. If this projection holds true, health care spending will account for 20% of U.S. GDP.

Although the long-term outlook presents a massive problem, over the short-term opportunities do exist for investors. Within the past two weeks, there have been bullish earnings reports from three companies within Medical-Health Maintenance Organizations: AmeriGroup (NYSE: AGP), Health Net (NYSE: HNT) and WellCare Health (NYSE: WCG). If I were to use a liberal definition of "two weeks", Humana (NYSE: HUM), which reported on Feb 5, would be a fourth company.

All four companies credited higher enrollments for helping to boost revenues and earnings. Medicare, particularly Part D, played an important roll for yet another quarter. Commercial enrollment was also higher, particularly for HNT, which generated growth by targeting small- and mid-sized businesses. Medical expense ratios (a measure of how much insurers are spending on claims) were mixed. Notably, general and administrative expenses were also mixed, an implication that the increase in enrollments has not resulted in a universal realization of economies of scale. Nonetheless, all four companies either raised their guidance or provided an optimistic forecast for 2007. The projections reflect an expectation that enrollments will continue to rise this calendar year.

AmeriGroup earned 40 cents in its fourth quarter, besting expectations by five cents. (This was the smallest surprise in more than four quarters.) Membership increased 16.6% year-over-year and contributed to an approximate 30% rise in revenues. The medical expense ratio was 82.1%. AGP anticipates that it can achieve organic revenue growth in the range of 25% to 30% next year. Based on this projection, the company raised its 2007 guidance by a nickel to a range of $1.85 to $2.00 per share. Five of the 12 covering brokerage analysts revised their forecasts in response, causing the consensus estimate to rise to $1.91 per share. AGP is a Zacks #2 Rank ("buy") stock.

Health Net generated adjusted fourth-quarter profits of 91 cents per share, a penny above expectations. Revenues rose 8.7% as enrollment grew in both the company's commercial and Medicare segments. Medical expenses improved to 81.7% of premiums from 82.9% a year prior. HNT anticipates earning $3.65 per share this year, based in part on further growth in the small- and mid-sized business segment. Eight of the 13 covering brokerage analysts raised their projections in response to the guidance; the new consensus estimate is $3.65, up three cents from the month-old forecast. HNT is a Zacks #2 Rank stock.

WellCare Health Plans topped estimates by five cents with fourth-quarter earnings of $1.38 per share. Revenues and membership more than doubled thank to the addition of Medicare Part D products and the launch of a Georgia Medicaid health plan. The medical expense ratio improved to 78.4% from 80.2%. Following the strong fourth-quarter performance, WCG raised its 2007 profit guidance to between $4.10 to $4.20 per share, from $3.95 to $4.05 per share. Nearly all of the covering brokerage analysts revised their forecasts in response, causing the consensus estimate to rise by 13 cents to $4.11 per share. WCG is a Zacks #1 Rank ("strong buy") stock.

Humana earned 92 cents per share last quarter, a slight decrease from the third quarter, but above analysts' expectations and the company's guidance. Medicare enrollment nearly doubled and commercial enrollment increased by approximately 4%. The medical expense ratio rose by 110 basis points to 83.2% primarily because of Medicare Part D. HUM believes it can continue achieving strong growth in 2007 and raised its guidance as a result. The company now anticipates earning $4.00 to $4.20 per share this year, a 10-cent increase over the previous forecast. Nearly all of the covering brokerage analysts revised their projections resulting in a 12-cent increase in the consensus estimate to $4.08 per share. HUM is a Zacks #1 Rank stock.

In addition to the above four companies, Cigna (NYSE: CI), which is classified in Insurance-Multiline also topped expectations and raised estimates. As I stated last week, CI generated earnings of $2.61 per share, 33 cents above the consensus estimate. Healthcare premiums and fees rose 11%, exclusive of the loss of a "large prescription drug contract", thanks to membership growth and rate increases. International revenues jumped substantially reflecting strength in the company's expatriate benefits business. Looking forward, CI anticipates expanding its medical membership rolls by 5% to 6% this year. As such, the company raised its 2007 operating income guidance to a range of $9.95 to $10.55 per share (an increase of 45 cents a share). 11 of the 13 covering analysts raised their forecasts in response, causing the consensus estimate to rise to $10.54 per share.

The interactive Zacks Industry Rank List allows you to see all of the companies, and their Zacks Rank, within more than 200 industries. See the list at http://at.zacks.com/?id=3208.

(a)The Zacks Rank is assigned to companies with earnings estimates made available by brokerage analysts. The Zacks' database contains earnings estimates for approximately 4400 companies.

About Zacks Industry Rank and the Zacks Rank

Zacks Industry Rank is calculated by averaging the Zacks Rank for all covered companies within a given industry. The Zacks Rank is assigned to approximately 4400 stocks and ranges from #1 ("Strong Buy") to #5 ("Strong Sell"). Both the Zacks Industry Rank and the Zacks Rank are quantitative indicators designed to cover periods of 1-3 months.

Since 1988, the Zacks Rank has proven that "Earnings estimate revisions are the most powerful force impacting stock prices." Since inception in 1988, #1 Rank stocks have generated an average annual return of +31.8%. During the 2000-2002 bear market, Zacks #1 Rank stocks gained +43.8%, while the S&P 500 tumbled -37.6%. Also note that the Zacks Rank system has just as many Strong Sell recommendations (Rank #5) as Strong Buy recommendations (Rank #1). Since 1988, Zacks Rank #5 stocks have underperformed the S&P 500 by 143.6% annually (+4.8% vs. +11.8%). Thus, the Zacks Rank system allows investors to truly manage portfolio trading effectively.

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