Amerigroup Corporation (AGP) saw revenue grow 8.8% in the third quarter 2008 as the managed healthcare sector remains solid. The company has been consistently surprising Wall Street analysts, beating on estimates 3 out of the last 4 quarters by an average of 34.28%. AGP is trading at only 9.3x forward earnings.

Company Description

Amerigroup provides healthcare access to the financially vulnerable, seniors and people with disabilities by developing multi-state managed health services for the public sector. The company services 1.7 million people in Florida, Georgia, Maryland, New Jersey, New Mexico, New York, Ohio, South Carolina, Tennessee, Texas and Virginia.

On Dec 31, the company announced that it was terminating its agreement to purchase certain assets of Centene Corporation’s (CNC) New Jersey Medicaid business due to certain events that occurred after it entered into the agreement. In response, Centene has sued Amerigroup to complete the New Jersey transaction.

The agreement to sell its South Carolina health plan to Centene was not affected and is still moving forward subject to regulatory approval.

Revenues jump 8.8% in the Third Quarter 2008

On Oct 22, the company announced third-quarter earnings that beat Wall Street estimates by 48%. Net income rose 26.2% to $39.4 million, or 74 cents per share, compared to $31.2 million, or 58 cents in the year ago period. Analysts expected only 50 cents.

Revenues rose 8.8% to $1.1 billion compared to the year ago quarter. Total premium revenues gained 9.1% to $1.1 billion versus $1 billion in the third quarter of 2007. The company saw improved results in Tennessee along with activation of the new managed long-term care services program in New Mexico.

2008 Guidance Raised

Amerigroup is bullish about the rest of 2008. It raised full-year guidance to the range of $2.58 to $2.63 from its previous guidance of $2.30 to $2.40. The company also issued its first guidance for fiscal 2009 and expects earnings per share in the range of $2.50 to $2.65.

Consensus Estimates Rise

In response to the earnings report and guidance, covering analysts have raised 2008 full-year estimates in the last 30 days to $2.60 from $2.34 which is in line with the company’s forecast.

2009 consensus estimates have also risen, gaining 3 cents to $2.60 in the last month, which is on the higher end of the company’s guidance range. The company is scheduled to report fourth-quarter and 2008 full-year earnings on Feb 11.

Value Fundamentals

Amerigroup is a Zacks #1 Rank (strong buy) stock. It is trading at 9.3x forward earnings. AGP’s price-to-book is 1.77. The company has a solid 5-year average return on equity (ROE) of 12.83%.

Content Courtesy: Zacks Investment Research

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