Sierra Health stock plunges on earnings warning

Friday, April 28, 2000 | 10:43 a.m.

The stock of Sierra Health Services, the largest health insurer in Las Vegas, plunged 18 percent this morning after its announcement Thursday that first-quarter earnings will be below analysts estimates of 25 cents to 30 cents per share.

Sierra stock traded at $3.44 this morning, down 75 cents per share from Thursday and well off its 52-week high of $16.25.

The earnings warning prompted Deutsche Banc Alex Brown to downgrade the stock from buy to market perform.

Sierra said operating earnings are expected to be 18 cents to 20 cents per share, excluding charges associated with Sierra's previously announced restructuring of its Texas operations, adverse developments for prior accident years in its workers' compensation operations and costs for restructured provider service subsidiaries.

With the charges of $5 million to $6 million, Sierra said its net quarterly profit will be 5 cents to 6 cents per share.

Sierra said it expects to report first quarter revenue of approximately $327 million, a 3 percent increase from the year-earlier quarter.

Sierra announced in March a major restructuring of its Texas Health Choice managed care plan and the Medical Group of Texas group practice. This effort included changes in senior management and centralization of key operations to Las Vegas.

Since March, the Dallas/Ft. Worth and Houston workforce has been reduced by approximately 20 percent. Sierra said the Texas restructuring is expected to continue through the second quarter and result in estimated annual savings of more than $5 million.

And while Sierra's workers' compensation business has realized premium increases of 20 percent to 30 percent in its core California market, it said its exposure for prior accident years appears to be trending upward, necessitating reserve strengthening of approximately $1 million-$2 million.

In Nevada, Sierra operates Health Plan of Nevada, the state's largest managed care plan.