) and Humana (HUM
) to underperform from in-line.
Analyst Matthew Borsch downgraded PacifiCare and Humana based on valuation and their vulnerability to price pressures. He downgraded the managed-health group to neutral from attractive. Borsch says in his analysis of 34 non-profit Blue Cross Blue Shield companies, he found earnings climbed dramatically in 2003, increasing the risk of "give back" pricing in 2004.
He expects widespread deterioration in pricing will hurt fundamentals and prevent further price-earnings expansion. However, long-term, Borsch says his view remains positive, with top-line growth tied to overall growth in healthcare spending.