) to neutral from buy and cut its $35 price target $28.
Analyst William McKeever says higher rates in the company's new hospital contracts in N.J. will take longer than previously expected to offset. He notes other HMOs in the market have indicated that hospital talks in N.J. have been difficult.
To overcome the effect of new hospital contracts in N.J., Health Net needs to re-price as many of its N.J. health insurance contracts as possible. Roughly 60% of these contracts renew in the second half of 2004; however, Health Net might not be able to reprice its book fast enough to avoid EPS shortfall, he says.
McKeever cut his $2.92 2004 EPS estimate to $2.70, and $3.50 2005 forecast to $3.10.