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Medicaid insurers Amerigroup Corp. (AGP), Centene Corp. (CNC) and Molina Healthcare Inc. (MOH) were big winners in a closely watched contest for business in Texas that could add billions in new revenue for the industry.
The Texas wins helped some companies regain ground Tuesday after slumping in recent days on concerns about pressure on premiums and the state of Georgia taking back money after record-keeping problems caused overpayments. Shares of Amerigroup--which dropped 29% between Friday and Monday after it disclosed the Georgia issues--recently traded up 4.2% to $50.09.
Centene rose 3% to $32.55, while Molina slipped six cents to $22.13.
"The Texas announcement will remind the market that Medicaid is a growth industry, and despite the vicious stock movements recently, the overall thesis of these plans doubling revenue between now and 2014 hasn't changed," Citigroup analyst Carl McDonald said.
Amerigroup, Centene and Molina could pick up the most new business in Texas, which announced on Monday tentative awards to several public and private health firms that will play an expanding role in providing Medicaid coverage for the poor. Bigger, diversified insurers UnitedHealth Group Inc. (UNH) and Aetna Inc. (AET) also won new business, but not as much, according to analyst estimates, while nonprofits also picked up new members.
HealthSpring Inc. (HS) also added a modest amount of new business, analysts estimated.
The state said insurers will start providing service in expanded areas on March 1 next year. The awards are subject to working out final contracts with the state.
Analysts' initial estimates varied, but they generally saw big potential revenue gains for the Medicaid insurers. Citigroup's McDonald, for example, estimated Centene will add $1.1 billion while Amerigroup adds $1 billion and Molina adds $625 million.
Stifel analyst Thomas Carroll had similar estimates for Amerigroup and Molina, but estimated $666 million in added revenue for Centene. He said estimates are preliminary, since rates are not yet final. He also upgraded his rating on Amerigroup to buy from hold
WellCare Health Plans Inc. (WCG) was surprisingly excluded from the market expansion, Carroll added, though he acknowledged that "there is plenty of future Medicaid business to go around."
The Texas Medicaid awards follow wins in Louisiana last week for Amerigroup, Centene and UnitedHealth and wins earlier in July in Kentucky for WellCare, Coventry Health Care Inc. (CHV) and Centene.
Among the Texas winners, Centene reiterated its earnings guidance for 2011, which it said incorporates start-up costs associated with the Texas award.
The big managed-care companies didn't fare as well in Texas as the Medicaid-specialized firms, though McDonald estimated about $489 million in added revenue for United and $28 million for Aetna. He thinks WellPoint Inc. (WLP), meantime, lost $65.6 million in revenue there.
Their performance raises the question "of whether the Medicaid M&A strategies of these companies need to evolve before they miss out on one of the few significant growth opportunities in the industry," McDonald said.
WellPoint shares recently traded down 1.7% to $64.35 while Aetna traded down 1.9% to $39.55 and UnitedHealth slipped 2.2% to $46.96.
-By Jon Kamp, Dow Jones Newswires; 617-654-6728;