Shares of First Health Group lost nearly a quarter of their value Monday after the company lowered its expectations for 2004, despite the fact that the PPO insurer also announced record earnings for the recently concluded third quarter.
The stock closed at $18.45 Monday, 24.6% below the Friday close of $24.47. Upward of 23.4 million shares changed hands in Nasdaq trading Monday, more than 30 times the Friday volume of 749,000.
At 2:30 p.m. EST today, shares were down another 15 cents to $18.30 and volume remained above normal.
First Health, based in Downers Grove, Ill., on Monday morning reported net income of $40.7 million for the three months ended Sept. 30, its best third-quarter performance ever. The result is 20% higher than the $33.7 million the company earned in the same period of 2002.
The net of 42 cents per diluted share beat consensus Wall Street estimates by 3 cents.
First Health also says that revenue increased by 7% during the quarter, to a record $219.7 million, from $204.9 million one year earlier.
CEO Edward Wristen says that the strong financial performance should continue for the balance of the year, but warns that 2004 projections are "disappointing" because the company expects customers to shift into lower-margin plans as employers struggle to contain healthcare expenses. Wristen also talks of heightened competition with financially healthy Aetna, UnitedHealth Group and various Blue Cross Blue Shield plans.
First Health is forecasting flat earnings next year and revenue growth in the "high single digits."
The news prompted Raymond James Financial to downgrade First Health to underperform.
"We believe the company could face the potential for increased competition in its public-sector PBM business given the potential for further consolidation in that business," Raymond James analyst Michael Baker writes.
Two of the four largest pharmacy benefit managers in the nation, AdvancePCS and Caremark Rx, are in the process of merging.