Company Description

Healthspring coordinates care plans through the Medicare Advantage market in Alabama, Florida, Illinois, Mississippi, Tennessee and Texas. The company also provides a national stand-alone Medicare prescription drug plan.

Healthspring Surprised by 22.22% in the Third Quarter

On Oct 29, Healthspring reported its third quarter results and easily beat the Zacks Consensus by 14 cents per share. Earnings per share were 77 cents compared to the Zacks Consensus Estimate of 63 cents. The company reported 53 cents in the year ago period.

Premium revenue rose 26% to $649.8 million compared to the year ago period. Membership in the Medicare Advantage jumped 19.4% compared to the year ago period and was up 15.1% even when compared with the end of 2008. Stand-alone PDP member also grew 11.6% compared to the third quarter of 2008.

As it said in its second quarter results, the company again emphasized that its Florida and Part-D operations have been outperforming.

Raised 2009 Guidance

Given that its Florida business continues to be strong, the company raised full year EPS guidance to the range of $2.30 to $2.40 from its prior guidance of $2.10 to $2.25.

It also is bullish on the number of members it expects under the Medicare Advantage program. The range has been adjusted higher to 188,000-189,000 from 186,000-188,000.

Zacks Consensus Estimates Rise

Given the raised guidance, analysts have moved to raise estimates. For the fourth quarter, the Zacks Consensus is up 3 cents to 62 cents in the last 30 days.

The full-year Zacks Consensus Estimate rose 7.8% to $2.34 from $2.17 per share just a month ago which is in the company's new guidance range. All 9 analysts raised in that time. Analysts expect 2009 earnings growth of 10.43%.

Analysts are optimistic about 2010, despite the ongoing uncertainty about healthcare reform. They boosted estimates for the full year by 16 cents to $2.22 per share.

Value Fundamentals

Healthspring is a Zacks #1 Rank (strong buy) stock. It is trading with a price-to-book of just 1.06. The company has a 5-year average return on equity (ROE) of 14.65%.

Zacks Investment Research

Health plan services premium, accounting for approximately 80% of total revenues during the quarter increased 3% year over year to $3.17 million. While revenues from government contracts increased 4.7% to $758 million, sequentially, it came down by 8.8%. We believe revenues from government contracts will decline further with the loss of contract in July with the Department of Defense awarding Aetna (AET) the $2.8 billion managed care contract to provide services for the northern region of the department's TRICARE program, replacing Health Net. However, Health Net protested against this move to the US Government Accounting Office; a final decision is yet to be taken.

In July, Health Net entered into an agreement with UnitedHealth Group (UNH) under which UnitedHealth acquired the northeast commercial operations of Health Net for about $510 million. We believe this decision was taken so that Health Net could concentrate on its core western markets.

At the end of the reported quarter, total health plan and total commercial risk enrollment were 3.6 million members, a decline of 3.8% and 166, 000 members, a decline of 8%, respectively compared with the year ago period. Apart from Medicaid enrollment, which increased 13.5% compared to the third quarter of 2008, enrollment in Medicare Advantage plan and Medicare PDP plans declined by 2.4% and 13.4%, respectively. The rise in Medicaid enrollment was the result of economic downturn, which causes the Medicaid-eligible population to increase.

Medical care ratio (MCR), calculating the amount paid in claims compared to premiums received for Health Net’s health plan services, declined to 86.4% during the quarter compared to 87.5% in the year ago period.

In addition to posting quarterly results, Health Net revised its outlook for 2009. The company now expects earnings per share at the lower end of its prior guidance, at $2.25 - $2.30 compared to the earlier guidance of $2.25 - $2.35. We believe higher costs related to the spread of H1N1 virus and expansion of COBRA (Consolidated Omnibus Budget Reconciliation Act of 1985) membership by laid-off workers made the company lower its outlook. Under COBRA, people can continue their employer sponsored insurance coverage even after they lose their jobs.

Chicago, IL – November 4, 2009 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Stanley Works (SWK), Black & Decker Corporation (BDK), Joy Global (JOYG), Paccar (PCAR) and Illinois Tool Works (ITW).

Get the most recent insight from Zacks Equity Research with the free Profit from the Pros newsletter: http://at.zacks.com/?id=5513

Here are highlights from Tuesday’s AnalystBlog:

Stanley Works Acquires B&D

Stanley Works (SWK) and Black & Decker Corporation (BDK) have entered into a definitive merger agreement to create Stanley Black & Decker, an $8.4 billion global tool maker. The Board of Directors of both companies approved an all-stock transaction valued at approximately $4.5 billion.

Under the terms of the deal, Black & Decker shareholders will receive 1.275 Stanley shares for each Black & Decker share they own. The deal is expected to close in the first half of 2010. Upon the completion of the transaction, Stanley shareholders will own 50.5% of the combined company, while Black & Decker shareholders will own the remaining 49.5%.

The Shape of GDP

While Government spending is higher now as a share of total GDP than its long-term average, it is below what it averaged in the 1950’s and 1960’s, and is not way out of line. I would, however, note that the measure of government spending does not include transfer payments like Social Security, Medicare, or unemployment insurance. Those are considered part of Consumption.

On the other hand, Investment is the most volatile of the components of GDP, and even if it were to return to the previous record low of 12.77% of GDP, that would be a 15.7% increase, assuming everything else showed no growth at all. A return to the long-term average would be a 44.5% increase.

With commercial rents plunging and vacancy rates soaring, the value of commercial real estate is in free-fall. It thus seems unlikely that we will get any short-term recovery on investments in non-residential structures. Thus if we are going to get a rebound in non-residential fixed investment, it will most likely have to come from the equipment and software side. That would be a very powerful tonic for the likes of companies like Joy Global (JOYG), Paccar (PCAR) and Illinois Tool Works (ITW).

However, will companies have a reason to invest in more equipment and software if the consumers are not buying? The key to that puzzle will most likely have to reside in the net exports area. At some point, we are going to have to get back to the point where were are running trade surpluses, where we export more than we import. Investments that reduce our oil import bill would also greatly help that effort.

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Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

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Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=5518.

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Revenues for the quarter increased 11% to $167.8 million compared to $150.7 million in the year ago period. The company reported a 6% rise in net earnings to $13.4 million, compared to $12.6 million in the third quarter of 2008. Third-quarter results included a negative impact from the effect of the revision of the Medicare payment system for ambulatory surgery centers (ASCs).

While the addition of 19 centers in operation during the last twelve months was primarily responsible for the robust growth in revenue, performance of same-center revenues remained lackluster due to the current economic conditions. Additionally, the Medicare rule revision reduced same center revenues by approximately 100 basis points.

Operating margin recorded a decline of 106 basis points to 33.82%, compared to 34.88% in the third quarter of 2008, driven by an increase in salary-related costs as well as other operating expenses.

AmSurg's balance sheet improved further after the robust performance. The company's cash flow from operating activities was $61.1 million at the end of the reported quarter, up from $55.5 million in the corresponding period last year. We are pleased to note that AmSurg made prudent use of the available funds (after capital expenditures of $5.4 million) by reducing its debt burden by $21.8 million.

As a result of the improvement in capital structure, total debt to capitalization at the quarter's end improved to 32.6% from 37.2% at the end of 2008. In addition, the ratio of total debt to trailing 12 months EBITDA also improved to 2, compared with 2.4 at the end of 2008.

Based on a strong performance, AmSurg raised the lower end of its previously-announced 2009 earnings outlook. The company now expects revenues and earnings in the range of $660 million - $680 million and $1.70 - $1.71, respectively. AmSurg reaffirmed its guidance for the addition of 13-16 centers in 2009, a majority of which are expected to be completed later this year.

Volume has surged to nearly 1.5 million shares today, compared to the daily average of 444,000.

Today's share price gain comes in the wake of Wednesday's preliminary CBO assessment of the health care reform bill, which suggested that it could cost less than the White House had expected (given a certain degree of savings that some experts deem to be unrealistic).

Earnings estimates for WCG have been moving steadily higher in recent weeks, and the company announced a solid second-quarter performance in late July.

It is scheduled to report third-quarter numbers on Nov 4.

WCG provides managed care services exclusively for government-sponsored health care programs, focusing on Medicaid and Medicare. It offers a variety of health plans for families, children, and the aged, blind and disabled, as well as prescription drug plans. It serves about 2.4 million members.

WCG is the only company from the Medical-HMO industry on today's Zacks #1 Rank List, which includes 221 stocks.

Earnings Estimates

The Zacks Consensus Estimate for this year is at $2.93 per share, which is up 41% from $2.08 in 3 months and up 2.4% from $2.86 in 2 months.

During its second-quarter report, WCG updated its financial outlook for the year, stating a guidance between $2.75 and $2.95 per share.

Meanwhile, the Zacks Consensus Estimate for next year has gained 9.7% in 3 months to $2.37 per share. Furthermore, the past 30 days has seen an advance of 3.5% from $2.29.

Second-Quarter Report

As mentioned above, WCG will report its third-quarter results early next month. At the moment, the Zacks Consensus Estimate for the quarter is at 67 cents, up a penny in 30 days.

For its second quarter, WCG announced earnings per share of 88 cents, which beat the Zacks Consensus Estimate by more than 131%.

Premium revenue advanced 9% to $1.8 billion from last year, thanks to increased Medicare Advantage and Medicaid plan premium revenue.

"Like other government program health plans, we have a challenging 2010 ahead of us," stated President/CEO Heath Schiesser.

"We are committed to continuing to make progress in the reliability of our operations, improvements in health care quality and management of our costs," he continued.

Zacks Investment Research

Company Description

Odyssey Healthcare provides hospice care in more than 30 states for terminally ill patients and their families. ODSY offers pain management and addresses the psychological and spiritual needs of the patients and their families.

Odyssey uses nurses, doctors, home healthcare aides, social workers, chaplains, bereavement counselors and trained volunteers to provide care in patients' homes, nursing homes or assisted living facilities.

Odyssey Surprised in the Second Quarter by 17.39%

On Aug 4, Odyssey reported second quarter results that beat the Zacks Consensus Estimate by 4 cents. Earnings per share increased 125% to 27 cents from 12 cents in the year ago quarter. The Zacks Consensus Estimate called for 23 cents.

Net patient service revenue continued to increase, rising by 6% to $170.3 million from $160.7 million in the second quarter of last year. Volume improved in May and June after a slow start in April prompting the average daily patient census to rise to 12,268 from 12,186 in the first quarter.

The company has to contend with Medicare Hospice Wage Index among other government set rates.

"I am also very pleased with our Medicare cap contractual during the quarter," said Robert Lefton, CEO.

"Even if you exclude the $534,000 positive adjustment related to the 2007 Medicare cap year, we still had a reduction in our net Medicare cap contractual of an additional $500,000, pre-tax, as we recovered amounts accrued during prior quarters for the current Medicare cap year as a result of changes in patient mix and increased admissions in some of our cap markets," he added.

2009 Zacks Consensus Estimate Rises

Third quarter estimates have been holding over the last 60 days at 25 cents per share. But the 2009 Zacks Consensus Estimate is up 9 cents to $1.03 in the last 90 days. 1 analyst out of 7 covering analysts has raised in the last 30 days.

Analysts expect year over year earnings growth of 73.85%.

Odyssey is scheduled to report third quarter results on Oct 27.

Value Fundamentals

Odyssey Healthcare is a Zacks #1 Rank (strong buy) stock. It is attractively valued with a forward P/E of 12.3. It has a price-to-book ratio of 1.87. The company also has a solid 5-year average return on equity (ROE) of 13.93%.

Zacks Investment Research

• The U.S. Census Bureau announced today that real median household income in the United States fell 3.6 percent between 2007 and 2008, from $52,163 to $50,303.
• The nation’s official poverty rate in 2008 was 13.2 percent, up from 12.5 percent in 2007. There were 39.8 million people in poverty in 2008, up from 37.3 million in 2007.
• The number of people without health insurance coverage rose from 45.7 million in 2007 to 46.3 million in 2008,
• In 2008, the earnings of women who worked full time, year-round was 77 percent of that for corresponding men, not statistically different from the 2007 ratio.
• The real median earnings of men who worked full time, year-round declined by 1.0 percent between 2007 and 2008, from $46,846 to $46,367. For women, the corresponding drop was 1.9 percent, from $36,451 to $35,745.
• Income inequality was statistically unchanged between 2007 and 2008, as measured by shares of aggregate household income by quintiles and the Gini index. The Gini index was 0.466 in 2008. (The Gini index is a measure of household income inequality; 0 represents perfect income equality and 1 perfect inequality.)
• Between 2007 and 2008, the number of people covered by private health insurance decreased from 202.0 million to 201.0 million, while the number covered by government health insurance climbed from 83.0 million to 87.4 million. The number covered by employment-based health insurance declined from 177.4 million to 176.3 million.
• The number of uninsured children declined from 8.1 million (11.0 percent) in 2007 to 7.3 million (9.9 percent) in 2008.

Why do I say that the official poverty rate understates poverty? Because the formula was set up back in the early 1960’s and was based on the percentage of income spent on food. Since then, the relative price of food has plummeted, while the cost of other necessities like shelter, health care and education has skyrocketed.

Frankly, I am surprised that the number of uninsured did not rise more than it did, given that most health insurance in the country is tied to employment and unemployment rose significantly over the course of 2008. However, the worst job losses for the year were at the very end.

I would expect that the number of uninsured will jump again in 2009. A big reason that the number of total uninsured did not rise further was the expansion of the S-Chip program for children. Without the drop in uninsured children due to the program, the increase in total uninsured would have been more than twice what it was. "Socialist" medicine, also known as Medicare, Medicaid and the VA, has managed to pick up the slack and provide coverage to those who are losing their private sector coverage.

It was good to see that the Gini index did not increase further -- it is the best single measure out there of income inequality, and the U.S. is already off the charts by developed country standards. With a Gini coefficient of 0.466, the distribution of income in the U.S. far more closely resembles that of China, Mexico and Rwanda than it does that of Canada, the UK or Australia. Our Gini index is twice that of Sweden, which has the world’s flattest income distribution. The highest level of inequality in the world is Namibia at 0.707. We are actually closer to Haiti (0.592) than we are to Canada (0.320). To see the international comparisons check here.

With half the households in the U.S. earning $50,303, it means that half the population can only afford to shop at discounters like Walmart (WMT) or Family Dollar (FDO). They have to spend on staples and necessities, not on discretionary items.

People in the lower half of the income distribution are far less likely to have health insurance coverage. If not provided by the job (low-wage jobs are much less likely to provide insurance than high-income jobs), how are they supposed to buy coverage when the average individual family plan costs $12,000 a year?

The result is that they will only get health care when they show up at the emergency room, which is a very expensive way to care for people. They also probably wait until they are very sick to seek treatment; thus problems that if caught early could have been solved with an Rx for antibiotics result in hospital stays. The only other option for them is death, and an estimated 20,000 people die each year in this country from easily treatable conditions because they have no health insurance.

With more than 25 years of experience as an analyst and portfolio manager, Dirk van Dijk is Zacks’ Chief Equity Strategist.  He also manages the new long-term investing service, Strategic Investor">Strategic Investor.

As would be expected in the current backdrop of potentially unfavorable regulatory change, the outlook for many health care industry groups is currently in the `Bad' category. As case in point is the Managed Care Industry (HMOs), whose fortunes are set to be negatively affected by most of the legislative proposals currently on the table for healthcare overhaul.

While there certainly can be good stocks in industries with bad outlooks, our general preference is to avoid such industries altogether. Not every healthcare industry group will be affected equally by the potential changes around the corner, which provides for plenty of investment opportunities in the healthcare space.

Opportunities

The already favorable earnings outlook for hospital administrators received a further boost from a recent rule change by the Center for Medicare and Medicaid Services allowing increased rates. Driven by positive earnings revisions, the hospital industry has an attractive Zacks Industry Rank 18, putting it towards the top of the 217 industry groups in our universe.

Particularly well positioned in this space is Universal Health Services (UHS), the fifth largest for-profit healthcare facilities company in the U.S. This company is also the largest public operator of behavioral facilities in the country. This Zacks Rank # 1 company reported better than expected second quarter results this week, with a 36% year-over-year growth in earnings.

Another company well positioned in this space is MEDNAX (MD), a leading provider of neonatal, maternal-fetal and pediatric physician services. The company not only produced better-than-expected quarterly results recently, but also provided a favorable outlook.

Weaknesses

We remain wary of the HMO players given the regulatory/public policy headwinds. Our research shows that even excellent stocks in a bad industry underperform, as they get pulled down by their peers. A case in point is Amerigroup Corporation (AGP), which through its substantial Medicaid-related business remains heavily exposed to budgetary pressures at the state level. Zacks Investment Research

As would be expected in the current backdrop of potentially unfavorable regulatory change, the outlook for many health care industry groups is currently in the `Bad' category. As case in point is the Managed Care Industry (HMOs), whose fortunes are set to be negatively affected by most of the legislative proposals currently on the table for healthcare overhaul.

While there certainly can be good stocks in industries with bad outlooks, our general preference is to avoid such industries altogether. Not every healthcare industry group will be affected equally by the potential changes around the corner, which provides for plenty of investment opportunities in the healthcare space.

Opportunities

The already favorable earnings outlook for hospital administrators received a further boost from a recent rule change by the Center for Medicare and Medicaid Services allowing increased rates. Driven by positive earnings revisions, the hospital industry has an attractive Zacks Industry Rank 18, putting it towards the top of the 217 industry groups in our universe.

Particularly well positioned in this space is Universal Health Services (UHS), the fifth largest for-profit healthcare facilities company in the U.S. This company is also the largest public operator of behavioral facilities in the country. This Zacks Rank # 1 company reported better than expected second quarter results this week, with a 36% year-over-year growth in earnings.

Another company well positioned in this space is MEDNAX (MD), a leading provider of neonatal, maternal-fetal and pediatric physician services. The company not only produced better-than-expected quarterly results recently, but also provided a favorable outlook.

Weaknesses

We remain wary of the HMO players given the regulatory/public policy headwinds. Our research shows that even excellent stocks in a bad industry underperform, as they get pulled down by their peers. A case in point is Amerigroup Corporation (AGP), which through its substantial Medicaid-related business remains heavily exposed to budgetary pressures at the state level. Zacks Investment Research

Total premium and administrative services fees increased 8% from the prior year's quarter due to increases in both average membership and per-member premiums for the company’s Medicare Advantage products.

The second quarter consolidated benefit ratio improved to 83.3% from 85.0% in the prior-year quarter. This 170 basis-point improvement was primarily driven by improvements of 220 basis points and 20 basis points in the Government and Commercial segment benefit ratios, respectively.

Earnings for Humana's Commercial segment fell 53% to $35.3 million, hurt by lower investment and lower income from its small group business. Commercial membership fell 3% to 3.45 million. Commercial unit premiums rose 1% to $1.87 billion.

Earnings from the Government segment rose 62% to $404.7 million. The increase was brought by lower claim expenses in its Medicare drug plans, a 13% increase in average Medicare Advantage membership and the introduction of member premiums for most of the company's Medicare Advantage products.

Medicare Advantage membership grew to 1,499,800 during the quarter, an increase of 154,800 members -- 12% -- from the prior-year period.

Favorable operating results as well as discharge of debt caused a decline in the debt-to-capitalization ratio to 25.0% from 29.3% last quarter.

Guidance

For the third quarter Humana expects earnings in the range of $1.75-1.80 per share, excluding non-recurring items. For full year 2009, the company expects:

• EPS of $6.10-6.20 (excluding non-recurring items), versus a Zacks estimate of $1.79
• Revenues of $30.0-32.0 billion
• Revenue of $16.0-16.5 billion for Medicare Advantage; approximately $2.4 billion in revenue for Medicare's stand-alone Prescription Drug Plan (PDPs)
• Revenues of approximately $7.5 billion in the Commercial segment
• An increase of approximately 50,000 from the prior year in Medicare Advantage membership
• Medicare stand-alone PDPs are expected to be down 1.1-1.2 million from the year-ago period
• Investment income of $270 to 290 million
• Medicare benefit ratio of 82.5-83.5%
• Government segment benefit ratio of 83.5-84.5%

Chicago, IL – July 29, 2009 – Zacks Equity Research highlights NTT DoCoMo (DCM) as the Bull of the Day and Altria Group (MO) the Bear of the Day. In addition, Zacks Equity Research provides analysis on United Health Care (UNH), Aetna (AET) and Humana (HUM).

Full analysis of all these stocks is available at http://at.zacks.com/?id=2676

Here is a synopsis of all five stocks:

Bull of the Day:

We maintain our Buy recommendation and the same valuation target for NTT DoCoMo (DCM), the largest mobile service provider in Japan, ahead of first quarter of fiscal 2010 financial results. The company currently maintains a leading 50% share of the Japanese wireless market.

DCM upgraded 98% of its total coverage area with 3G HSDPA technologies and emerging 4G LTE networks are planned for deployment through 2010. DCM's decisions to focus on mobile content along with a renewed geographic expansion drive outside Japan are positive indicators.

Furthermore, the company is launching an innovative on-line money transfer service. We consider DCM as an attractive long-term investment opportunity.

Bear of the Day:

Altria Group (MO) is the leading domestic tobacco company, which generates significant cash flow and the stock has a high dividend yield. In an effort to expand into adjacent categories, Altria acquired UST, the world's leading moist smokeless tobacco manufacturer.

However, the company is engaged in numerous tobacco liability suits. Several large punitive damage awards have been upheld, most recently the $79.5 million judgment in the Williams case in 2009.

In addition, the 150+% federal excise tax increase should dramatically reduce cigarette volume. A Sell rating is recommended.

Latest Posts on the Zacks Analyst Blog:

“Blue-Dogging" Health Care

Probably the most important tool on the table for controlling health care costs is the public option. Essentially, it will let individuals buy into Medicare early. Medicare is a FAR more efficient system than the private health insurance system. For each dollar that is spent on Medicare, more than 98 cents goes to paying for actual medical costs.

At the major health insurance companies like United Health Care (UNH), Aetna (AET) and Humana (HUM), less than 80% goes to pay for doctors and hospitals. The rest of the money goes to overhead -- principally trying to get lots of people to apply for health care coverage and then to weed out the ones that are more likely to get sick. These companies also spend a lot of money on trying to figure out if someone had an undisclosed pre-existing condition, so they can deny coverage to people who thought they were insured when they actually get sick and file a claim.

The health insurance industry is rightly afraid of the public option, because it is a much better mousetrap and will eventually lead to the industry having a much smaller, supplemental role (equivalent to the current medigap policies offered to supplement Medicare) rather than being a huge industry.

Get the full analysis of all these stocks by going to http://at.zacks.com/?id=5507.

About the Bull and Bear of the Day

Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.

About the Analyst Blog

Updated throughout every trading day, the Analyst Blog provides analysis from Zacks Equity Research about the latest news and events impacting stocks and the financial markets.

About Zacks Equity Research

Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

Continuous analyst coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today by visiting http://at.zacks.com/?id=5508.

About Zacks

Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=5509.

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Follow us on Twitter: http://twitter.com/zacksresearch

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Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.

Contact:
Mark Vickery
Web Content Editor
312-265-9380
Visit: www.zacks.com

Chicago, IL – July 22, 2009 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Allscripts-Misys Healthcare Solutions (MDRX), Cerner Corporation (CERN), Quality Systems Inc. (QSII), MedAssets Inc. (MDAS) and Zions Bancorporation (ZION).

Get the most recent insight from Zacks Equity Research with the free Profit from the Pros newsletter: http://at.zacks.com/?id=5513

Here are highlights from Tuesday’s Analyst Blog:

AllScripts Posts Strong Q4 & FY

Allscripts-Misys Healthcare Solutions (MDRX) reported fourth quarter and full fiscal year 2009 results. Both Non-GAAP EPS and revenue for the quarter exceeded the Street’s expectations.

Non-GAAP EPS was $0.16, above the $0.15 expected by the Street. Total revenue for the quarter was $166.2 million, compared to the Street’s expectations of $160.5 million.

Allscripts is likely to benefit most from the recent Medicare Improvements for Patients and Providers Act of 2008 (H.R. 6331) passed by the U.S. Congress. The Act, for the first time ever, provides financial incentives to physicians who adopt electronic prescribing (ePrescribing), requires adoption by 2011, and delays any reduction in fees for treating Medicare patients.

Allscripts faces strong competition from Cerner Corporation (CERN), Quality Systems Inc. (QSII) and MedAssets Inc. (MDAS). Based on the company’s performance in the fourth quarter and full year, we reiterate our Hold rating on Allscripts.

ZION’s Q2 Shows Mixed Results

On July 20, 2009, Zions Bancorporation (ZION) reported the second quarter of 2009 financial results. Adjusted loss for the quarter came in at $0.04 per diluted share, substantially ahead of our estimates and consensus.

Net loss for the quarter came in at $40.7 million or $0.35 per share, largely driven by impairment losses on investment securities of $42.0 million and valuation losses due to write-downs of impaired securities of $11.7 million. The loss was also caused by significantly higher provisions for loan losses. Excluding impairment losses and valuation losses on investment securities, operating loss came in at $4.7 million or $0.04 per diluted share, compared to the loss of $44.9 million or $0.39 per diluted share in the prior quarter, and adjusted net income of $70.0 million or $0.66 per diluted share in the prior-year quarter.

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About Zacks Equity Research

Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

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The basic power of the Fed derives from its ability to create money, which it can use to buy assets or extend loans. We can summarize the Fed's actions in terms of either the asset side of its balance sheet (the assets and loans it holds), or the liabilities side (the money or other obligations it has created). Let's start with the asset side. Up until January of 2008, by far the most important assets held by the Fed were short-term Treasury bills. As last year wore on, the Fed significantly expanded its loans in the form of currency swaps with foreign central banks, direct lending to U.S. banks through term auction credit, and the Commercial Paper Lending Facility. Altogether such measures more than doubled the various asset holdings of the Fed by the end of the year, despite the fact that the Fed sold off 40% of its original T-bills.

Figure 1. Factors supplying reserve funds, in billions of dollars, seasonally unadjusted, from Jan 1, 2007 to July 15, 2009. Wednesday values, from Federal Reserve H41 release. Agency: federal agency debt securities held outright; swaps: central bank liquidity swaps; Maiden 1: net portfolio holdings of Maiden Lane LLC; MMIFL: net portfolio holdings of LLCs funded through the Money Market Investor Funding Facility; MBS: mortgage-backed securities held outright; CPLF: net portfolio holdings of LLCs funded through the Commercial Paper Funding Facility; TALF: loans extended through Term Asset-Backed Securities Loan Facility; AIG: sum of credit extended to American International Group, Inc. plus net portfolio holdings of Maiden Lane II and III; ABCP: loans extended to Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility; PDCF: loans extended to primary dealer and other broker-dealer credit; discount: sum of primary credit, secondary credit, and seasonal credit; TAC: term auction credit; RP: repurchase agreements; misc: sum of float, gold stock, special drawing rights certificate account, and Treasury currency outstanding; other FR: Other Federal Reserve assets; treasuries: U.S. Treasury securities held outright.

In 2009, the Fed has been winding down some of these programs, with significant declines in swaps, CPLF, and TAC, replaced by big increases in items such as mortgage-backed securities and agency debt. The changes over the last few months should not by any stretch be described as a return to "plain vanilla" central banking. The risk on MBS and agencies is greater than that for T-bills, and the asset level today remains 130% above its value at the start of 2007.

Where did the Fed obtain the funds with which it acquired all these new assets? To say that it did so by "printing money" would be inaccurate. The Fed doesn't lend a half trillion in term auction credit by handing out big bundles of green paper with Ben Franklin's picture on them. Instead, it creates an entry in an account that the recipient bank has with the Fed known as the bank's Federal Reserve deposits. The bank could, if it wanted, use those credits to ask the Fed for those Ben Franklin souvenirs. Instead the bank presumably used the new deposits to pay for some obligations or make some loans, either of which it would instruct the Fed to implement by transferring those reserves to some other bank. That bank in turn could use the reserves to ask for C-notes, or pass them on to somebody else through its own loans or any other expenditures.

And the buck stops-- where? In normal times, the process of banks putting any excess reserves to use would continue until there's enough expansion of banking and economic activity that ultimate recipients did want to turn those reserves into green currency. And once that happens, it would not be a misleading summary of the bottom line to say that the Fed eventually paid for its original asset purchase by "printing money".

But in the fall of 2008, the Fed did not want that to happen. It wanted to extend a trillion in new loans, but it did not want to see currency held by the public go up by a trillion dollars, out of fear the latter would be very inflationary. The Fed's thinking was that we didn't need a traditional inflationary expansion of credit, but instead needed to allocate credit to particular functions without having conventional measures of the money supply swell.

The graph below describes how the Fed did that, looking now at the liabilities side of the Fed's balance sheet. The height of Figure 2 at any date is identical, by definition, to the height of Figure 1, but whereas Figure 1 was looking at what the Fed did with its funds, Figure 2 summarizes how the Fed obtained those funds. In other words, Figure 2 looks at where the reserve deposits the Fed created ended up, and explains why the dramatic actions of Figure 1 haven't yet shown up as currency held by the public.

Figure 2. Factors absorbing reserve funds, in billions of dollars, seasonally unadjusted, from Jan 1, 2007 to July 15, 2009. Wednesday values, from Federal Reserve H41 release. Treasury: sum of U.S. Treasury general and supplementary funding accounts; reserves: reserve balances with Federal Reserve Banks; misc: sum of Treasury cash holdings, foreign official accounts, and other deposits; other: other liabilities and capital; service: sum of required clearing balance and adjustments to compensate for float; reverse RP: reverse repurchase agreements; Currency: currency in circulation.

One big factor has been the accounts that the U.S. Treasury holds with the Fed. Essentially, the Fed asked the Treasury to borrow some money through public auctions, which it did. Banks paid for these new T-bills by instructing the Fed to transfer to the Treasury the Federal Reserve deposits that they'd received from the Fed as a result of the programs in Figure 1. The Treasury then just left the funds sitting there in its accounts with the Fed. In effect, the Fed obtained the funds for some of its actions on the asset side not by "printing money" but instead by having the Treasury borrow funds on its behalf on the liabilities side.

However, an even bigger volume of the deposits that the Fed created are still just sitting on the banks' books. The way the fed funds market functioned in 2007, that would never have happened. Why close your bank's books for the day with funds just sitting there in an account with the Fed, earning no interest, when you could loan them out overnight instead? A big bank would never do such a thing in 2007. But they're happy to do so in 2009, in part because the overnight lending opportunities are not particularly attractive at the moment, and in part because the Fed now pays interest on those reserves. From the bank's point of view, funds left on deposit with the Fed at the end of the day aren't idle at all, under the new system adopted in the fall of 2008.

One of the points that Bernanke makes in his op-ed is that the Fed could continue to use this device, if need be, to prevent essentially any volume of its asset side activity from showing up as an increase in currency held by the public, simply by raising the interest rate the Fed offers to pay on reserves to whatever level is necessary to persuade banks to continue to hold these funds idle overnight. In effect, the Fed is through this device borrowing directly from the public to fund its asset-side activities rather than by "printing money".

Should that allay any inflationary concerns people may have about the doubling in the size of the Fed's balance sheet? In a narrow mechanical sense, perhaps. It is true that the new assets have not yet shown up as an increase in the money supply, and it is true that the Fed has the power to prevent them from doing so in the future. But my concerns about inflation are not that the Fed would lose the ability to target a particular level for the money supply, and certainly are not concerns about the next six months, where I still see deflation as a bigger worry than inflation. Instead, my concern is that the current fiscal trajectory is fundamentally inconsistent with the Federal Reserve choosing to keep inflation under control. Both devices, ballooning of the Treasury's account with the Fed and enabling the Fed in effect to borrow directly on its own, are indeed as much fiscal measures as they are monetary. But to someone worried about the increasing co-mingling of monetary and fiscal policy, that blurring of the lines is not a reassuring development.

My specific worry is that we will eventually face a crisis of confidence in the Treasury and the dollar itself. It is true, as Bernanke suggests, that raising the interest rate paid on reserves in such a setting would be a policy tool that could be used in response. But it would be an unattractive measure to the point of perhaps being impossible to use in practice, for the same reason other countries have dreaded raising interest rates in the face of collapsing real economic activity and a flight from their currency.

I fear that the United States government is mistakenly assuming that it can borrow essentially unlimited sums without undermining confidence in the dollar itself. The real question of a successful exit strategy, in my opinion, is how do we extricate ourselves from the joint fiscal commitments currently assumed by the Treasury, the Fed, the FDIC, the Medicare and Social Security trust funds, and various and sundry implicit and explicit federal guarantees?

The answer, in my opinion, is not to be found in the Treasury doing even more borrowing on behalf of the Fed or the Fed doing even more borrowing on behalf of itself.

Total public debt outstanding of the U.S. Federal Government is currently $11,490 billion, or $124,000 per taxpayer. But a fair chunk of that total public debt-- $4,350 B to be exact-- is money that the government owes to itself, about half to the Social Security Trust Fund, and the remainder to other government accounts such as Civil Service Retirement and Disability, Military Retirement, Medicare, and Unemployment Insurance Trust Funds. The debt actually held by the public is "only" $7,140 billion, which amounts to half of last year's GDP. The Congressional Budget Office estimates that debt held by the public will rise to 56.6% of GDP by the end of this year. That will put the number well above the peaks reached in the Revolutionary War, Civil War, World War I, or the Reagan years, though still significantly below the debt run up from World War II.

Figure 1. Federal debt held by the public as a percent of GDP, 1790-2008, and projected for 2009. Data source: Congressional Budget Office.

But is it correct to subtract off the $4.3 trillion that the government owes "to itself"? These intragovernmental accounting entries represent an intention of the government to deliver real resources to certain parties, such as retirees, at a future date, so perhaps we should include them in a reckoning of all that the government has promised to pay. On the other hand, given what is currently promised, and given trends in the aging population and rising medical costs, if benefit formulas continue as present, the amount that the government would be obligated to deliver far exceeds the sums acknowledged in the intragovernmental debt accounts or what could be covered with future tax revenues.

One calculation that the CBO has performed is what they call an "alternative fiscal scenario" representing

one interpretation of what it would mean to continue today's underlying fiscal policy. This scenario deviates from CBO's baseline even during the next 10 years because it incorporates some policy changes that are widely expected to occur and that policymakers have regularly made in the past.

According to the CBO, in the absence of a significant increase in taxes above historical rates or change in benefit policies, growth in Medicare, Social Security, and Medicaid would quickly produce an explosion of federal debt.

Figure 2. Debt held by the public as a percent of GDP, 1790-2008, and projected for 2009-2083 under the "alternative fiscal scenario". Data source: Congressional Budget Office.

Of course such a path is completely infeasible and unsustainable. Then what exactly is the government promising to provide in the way of retirement medical care and income for those currently working, and what will the government actually deliver? The answer to both questions is unclear to me, though I have no doubt that this category of off-balance-sheet liability represents a potentially staggering sum.

But whatever you think future spending on Medicare will be, consider some of the other off-balance sheet federal promises. At the end of 2008, the Federal Deposit Insurance Corporation had insured $4.8 trillion in deposits. Fannie and Freddie, which are now effectively nationalized, bring perhaps another $4.9 trillion in notional liabilities to the table. Those two alone sum to an amount well in excess of the current federal debt owed to the public.

Ah, but the federal government wouldn't actually be asked to honor more than a small fraction of those guarantees, would it? Only a few banks will fail, and the prime loans insured by Fannie and Freddie are safe, right? Right?

Still, even a modest fraction of $10 trillion sounds like a lot of money to me.

Then there's the loose change, such as the $1.1 trillion in obligations of the Federal Home Loan Banks. The federal government does not officially acknowledge responsibility for the liabilities of these government-sponsored enterprises, though that of course is what it had also claimed about Fannie and Freddie. Government-owned Ginnie Mae has issued guarantees on another $577 billion in mortgage-backed securities, while the Federal Housing Administration has insured $532 billion in mortgages. The U.S. Federal Reserve has added $1.1 trillion to its liabilities since September. And now loan guarantees appear to be the instrument of choice for U.S. energy policy ([1], [2]).

Of course there's a simple reason why all this happens. There is tremendous pressure for politicians to deliver in the form of off-balance-sheet commitments. Voters credit them for giving us what we want now, and blame somebody else when the time comes to pay for it. I'm amazed that no one is being held accountable for the fiasco of Fannie and Freddie, and indeed leading elected officials continue to advocate more of the same policies that created the original problem.

Some might look at Figure 1 and conclude that the U.S. could issue much more debt and still find ready buyers. But I worry that Figure 1 is only the tip of a very big iceberg.

The outlook for the drug store industry is negative. Although the demographics of an aging U.S. population are favorable for the prescription drug industry, the outlook for pharmacies remains clouded due to several influences on the industry.

Competition will remain stiff in the pharmacy segment as other retail businesses continue to add pharmacy departments and as other low-cost pharmacy options come on-line. Discount retailers, in particular, have made substantial inroads in gaining market share during the last year. The trend toward generic drugs, while providing better margins for retail pharmacists, is expected to slow over the next year. In addition, various drug re-importation schemes have been proposed by large employers and state and local governments in an effort to manage escalating healthcare costs.

Clouding the outlook further is the legislation that provides drug benefits under Medicare. Real GDP declined 6.3% in the fourth quarter of 2008, and the unemployment rate rose to 8.5% in March 2009. Consumer confidence is low and retail sales fell 1.1% in March. Consumer confidence is a key to consumer willingness to make purchases, which accounts for nearly three-quarters of all U.S. economic activity. Falling home sales and declining financial markets have negatively impacted consumer spending over the last few months. Due to the housing crisis, consumers are uncertain about home refinancing and financing, a key source of consumer discretionary spending. Overall retail sales (and related front-end sales in drug stores) are expected to be under pressure until consumer confidence rebounds.

Companies like Rite Aid (RAD), CVS Caremark (CVS), and Walgreen (WAG), are all facing severe margin contraction due to Wal-Mart's (WMT) foray into the retail generic drug market.

Moreover, for Rite Aid, the acquisition of Brooks Eckerd increased both debt burden and interest expense. Further, the company has also shut down many stores as it reported a loss in the latest quarter. Moreover, it competes with Walgreen and CVS Caremark, both of which are expanding. In addition, both companies have higher margins than Rite Aid due to structural cost advantages, including purchasing power to obtain lower cost merchandise and significantly less interest expense.

Therefore, we currently hold a sell rating on Rite Aid, and a Hold rating on CVS Caremark and Walgreen.

Chicago, IL - June 25, 2009 - Zacks.com releases the latest Zacks Industry Rank. Stocks featured in this week's analysis include Stericycle (SRCL), Quest Diagnostic (DGX), Biogen Idec (BIIB), AmeriSourceBergen (ABC), Abbott Labs (ABT), Sunoco (SUN), Tesoro (TSO), AK Steel (AKS), Nucor (NUE), United States Steel (X), Fifth Third (FITB), First Horizon National (FHN), Zions Bancorp (ZION), Suntrust Banks (STI), Franklin Resources (BEN), AllianceBernstein Holding (AB), Texas Instruments (TXN), National Semiconductor (NSM) and Micron (MU).

Zacks Industry Rank Analysis is written by Charles Rotblut, CFA, Senior Market Analyst for Zacks.com.

This Week: Second-Quarter Earnings Outlook

Second-quarter earnings will be ugly.

Median EPS is projected to drop 21.2%. Nearly 75% of S&P 500 members are forecast to report earnings that are lower than a year ago. 62 companies are projected to have lost money.

These numbers are not unexpected given that we remain in the midst of a recession. They could even prove to be too pessimistic given the propensity of companies to surprise and the relative improvements in economic conditions.

Growth Industries

The one sector projected to show the strongest growth is also the one with the highest political risk - Medical. The majority of medical care providers, health insurers, pharmacy benefit managers and drug companies should report a year-over-year increase in profits.

Zacks #2 Rank ("buy") stocks expected to report growth include Stericycle (SRCL) (+14.4%), Quest Diagnostic (DGX) (+13%), Biogen Idec (BIIB) (+9.8%), AmeriSourceBergen (ABC) (+7%) and Abbott Labs (ABT) (+5%).

The medical sector is less economically sensitivity than other sectors. Plus, the expansion of Medicare Part D has made prescriptions more affordable.

The obvious risk, however, is the ongoing discussions about healthcare reform. Though these talks have no impact on current earnings, they could significantly impact future earnings.

Another area of growth is refining. Sunoco (SUN) and Tesoro (TSO) are expected to have increased second-quarter profits by 46% and 223.7% respectively. These impressive numbers are a reflection of last year's spike in oil prices.

The problem is that the recent rise in oil prices is hurting margins.

Full-year earnings estimates are falling for both companies, which means even if TSO and other refiners top expectations, guidance could be weak. Our oil analyst, Sheraz Mian, downgraded TSO last month to a long-term sell recommendation.

Industries With Profit Declines

Since most industries will show a year-over-year decline in median EPS growth, I'm going to focus on 2 industries with the biggest projected declines.

Steel is among the worst, with 3 companies - AK Steel (AKS), Nucor (NUE) and United States Steel (X) - projected to report year-over-year declines in excess of 130% each.

These companies are facing very tough comparables because of last year's commodity bubble. Though AK Steel (AKS) said on Tuesday that its results would show a sequential quarterly improvement, any narrower loss would be because of cost-cutting and not improving business conditions.

NUE is a Zacks #4 Rank ("sell") stock. AKS and X are Zacks #3 Rank ("hold") stocks.

Banks will not fare much better. Regional banks are forecast to report a median decline of 98.7% and the large banks are projected to report a 61.3% decrease. Though the government has deemed some banks too big to fail, the FDIC has shut down 40 since the start of the year.

Home foreclosures have yet to peak and credit card default rates are rising. At the same, the ongoing housing slump and tighter credit standards continue to hurt mortgage originations. And though Q208 was not great for the banks, the credit crunch was not as severe as what was witnessed in the second half of 2009.

The largest year-over-year declines is likely to come from Fifth Third (FITB) (-689.3%, the bank is swinging from a profit, on an adjusted basis, to a loss), First Horizon National (FHN) (-211.6%), Zions Bancorp (ZION) (-189.7%) and Suntrust Banks (STI) (-166%).

Where To Look For Surprises

There are 2 industry groups that I would keep an eye on for potential positive surprises - Finance-Investment Management and Electronic-Semiconductor.

As I said last week, profit forecasts are rising for several mutual fund managers, including Franklin Resources (BEN) and AllianceBernstein Holding (AB).

Positive mutual fund inflows and growth in assets under management have some analysts rethinking their forecasts. However, since many of the covering analysts have not followed suit, the consensus earnings estimates could prove to be too low.

The semiconductor industry appears to be in the early stages of a recovery. Therefore, while profits will be terrible (down -61.5%), they could very well be better than forecast.

Texas Instruments (TXN) raised its Q2 forecast earlier this month, SEMI's (a chip industry association) book-to-bill ratio has increased for 3 consecutive months and analysts have been revising their full-year forecasts higher. Plus, National Semiconductor (NSM) beat by 18 cents when it reported last week.

We'll get another early indicator of how chip earnings look relative to expectations this afternoon, when Micron (MU) reports. The consensus earnings estimate calls for a loss of 43 cents per share.

Zacks "Profit from the Pros " e-mail newsletter offers continuous coverage of the industries and the stocks poised to outperform the market. Subscribe to this free newsletter today by visiting http://at.zacks.com/?id=5611.

About Zacks

Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3:1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit From the Pros by going to http://at.zacks.com/?id=5610.

Follow us on Twitter: http://twitter.com/ZacksInvestment

Join us on Facebook: http://www.facebook.com/home.php#/pages/Zacks-Investment-Research/57553657748?ref=ts

Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.

Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.

Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.

Contact: Charles Rotblut, CFA
Company: Zacks.com
Phone: 312-265-9352
Email: pr@zacks.com
Visit: www.zacks.com

These numbers are not unexpected given that we remain in the midst of a recession. They could even prove to be too pessimistic given the propensity of companies to surprise and the relative improvements in economic conditions.

Growth Industries

The one sector projected to show the strongest growth is also the one with the highest political risk - Medical. The majority of medical care providers, health insurers, pharmacy benefit managers and drug companies should report a year-over-year increase in profits.

Zacks #2 Rank ("buy") stocks expected to report growth include Stericycle (SRCL) (+14.4%), Quest Diagnostic (DGX) (+13%), Biogen Idec (BIIB) (+9.8%), AmeriSourceBergen (ABC) (+7%) and Abbott Labs (ABT) (+5%).

The medical sector is less economically sensitivity than other sectors. Plus, the expansion of Medicare Part D has made prescriptions more affordable.

The obvious risk, however, is the ongoing discussions about healthcare reform. Though these talks have no impact on current earnings, they could significantly impact future earnings.

Another area of growth is refining. Sunoco (SUN) and Tesoro (TSO) are expected to have increased second-quarter profits by 46% and 223.7%, respectively. These impressive numbers are a reflection of last year's spike in oil prices.

The problem is that the recent rise in oil prices is hurting margins.

Full-year earnings estimates are falling for both companies, which means even if SUN and TSO top expectations, guidance could be weak. Our oil analyst, Sheraz Mian, downgraded TSO last month to a long-term sell recommendation.

Industries With Profit Declines

Since most industries will show a year-over-year decline in median EPS growth, I'm going to focus on 2 industries with the biggest projected declines.

Steel is among the worst, with 3 companies - AK Steel (AKS), Nucor (NUE) and United States Steel (X) - projected to report year-over-year declines in excess of 130% each.

These companies are facing very tough comparables because of last year's commodity bubble. Though AKS said yesterday that its results would show a sequential quarterly improvement, any narrower loss would be because of cost-cutting and not improving business conditions.

NUE is a Zacks #4 Rank ("sell") stock. AKS and X are Zacks #3 Rank ("hold") stocks.

Banks will not fare much better. Regional banks are forecast to report a median decline of 98.7% and the large banks are projected to report a 61.3% decrease. Though the government has deemed some banks too big to fail, the FDIC has shut down 40 since the start of the year.

Home foreclosures have yet to peak and credit card default rates are rising. At the same, the ongoing housing slump and tighter credit standards continue to hurt mortgage originations. And though Q208 was not great for the banks, the credit crunch was not as severe as what was witnessed in the second half of 2009.

The largest year-over-year declines are likely to come from Fifth Third (FITB) (-689.3%, the bank is swinging from a profit, on an adjusted basis, to a loss), First Horizon National (FHN) (-211.6%), Zions Bancorp (ZION) (-189.7%) and Suntrust Banks (STI) (-166%).

Where To Look For Surprises

There are 2 industry groups that I would keep an eye on for potential positive surprises - Finance-Investment Management and Electronic-Semiconductor.

As I said last week, profit forecasts are rising for several mutual fund managers, including Franklin Resources (BEN) and AllianceBernstein Holding (AB).

Positive mutual fund inflows and growth in assets under management have some analysts rethinking their forecasts. However, since many of the covering analysts have not followed suit, the consensus earnings estimates could prove to be too low.

The semiconductor industry appears to be in the early stages of a recovery. Therefore, while profits will be terrible (down -61.5%), they could very well be better than forecast.

Texas Instruments (TXN) raised its Q2 forecast earlier this month, SEMI's (a chip industry association) book-to-bill ratio has increased for 3 consecutive months and analysts have been revising their full-year forecasts higher. Plus, National Semiconductor (NSM) beat by 18 cents when it reported last week.

We'll get another early indicator of how chip earnings look relative to expectations tomorrow, when Micron (MU) reports. The consensus earnings estimate calls for a loss of 43 cents per share.

Zacks Premium and Zacks Elite subscribers can view the Zacks Industry Rank List at http://www.zacks.com/zrank/zrank_inds.php. This interactive list allows you to see all of the companies, and their Zacks Rank, within more than 200 industries. Shown below is the Zacks Sector Rank List, which shows the trend in estimate revisions on a broader scale.

Sector Rank as of Jun 24
Sector	This Week's Zacks Rank	Last Week's Zacks Rank	FY09 Revisions Ratio	FY09 Estimates Revised Up	FY09 Estimates Revised Down
Retail-Wholesale	2.57	2.52	2.79	419	150
Consumer Staples	2.78	2.80	1.91	174	91
Medical	2.87	2.91	1.20	243	202
Consumer Discretionary	2.89	2.85	0.93	136	146
Computer and Technology	2.93	2.94	1.98	513	259
Utilities	2.98	2.97	0.74	60	81
Oils-Energy	3.01	3.02	0.94	340	363
Business Services	3.02	3.01	1.02	50	49
Construction	3.05	3.18	0.44	36	81
Conglomerates	3.07	2.96	0.64	9	14
Aerospace	3.08	3.13	0.44	11	25
Auto-Tires-Trucks	3.11	3.06	0.51	21	41
Basic Materials	3.13	3.10	0.71	131	185
Industrial Products	3.16	3.18	0.78	85	109
Finance	3.17	3.17	0.85	454	533
Transportation	3.30	3.25	0.40	77	191

Charles Rotblut, CFA, is the senior market analyst for Zacks.com. He can be reached at crotblut@zacks.com.

Zacks Investment Research

There are 3 other companies from this industry on today's Zacks #1 Rank List: HealthSouth Corp. (HLS), LHC Group, Inc. (LHCG) and Odyssey HealthCare (ODSY). (In total, there are 225 stocks on today's Zacks #1 Rank List.)

RHB develops, markets, and manages comprehensive medical rehabilitation programs and therapy services in acute-care hospitals, skilled nursing units and outpatient facilities. The company is associated with 1,200 hospitals and skilled nursing facilities in 42 states.

Good Trend in Earnings Estimates

Profit expectations for both this year and next have been climbing higher for weeks. Four covering analysts expect earnings of $1.46 for the year ending December 2009, which is up 12.3% over the past 2 months, including a gain of 3.5% in the past 30 days.

There are only half as many analysts currently looking at the year ending December 2010, but they too have raised forecasts. The consensus of $1.77 is 15.7% higher than 2 months ago and 6% higher than 30 days ago. Furthermore, the forecast for next year is about 21% higher than this year.

RHB Sells Phase 2 Consulting

The big news for RHB last week was the sale of Phase 2 Consulting - its healthcare management consulting division - to Premier, Inc. for an undisclosed amount. Proceeds from the sale will be used to further reduce outstanding debt.

"Given the aging population and the support for bundled Medicare payments building in Washington, we foresee a rapidly expanding demand for our continuum of post-acute care services," said President and CEO John H. Short, Ph.D. "This transaction allows us to focus more of our resources and energies on our core business."

Average Surprise of +33% Over 4 Quarters

The company's first-quarter report from May 6 not only helped earnings estimates to rise, but also made RHB the Zacks #1 Rank Top Performer for that day.

Earnings per share of 48 cents beat expectations by more than 50% and contributed to an average surprise of 33% over the past 4 quarters.

Revenues increased 11.6% to $203.4 million in the quarter, versus $182.4 million last year. The company's Skilled Nursing Rehabilitation Services (SRS) division reported a 9.5% increase in operating revenues to $123.1 million. Meanwhile, operating revenues for the Hospital Rehabilitation Services (HRS) division moved higher 7.2%, while operating revenues at the Hospital division advanced 28.6%.

Zacks Investment Research

There are 3 other companies from this industry on today's Zacks #1 Rank List: HealthSouth Corp. (HLS), LHC Group, Inc. (LHCG) and Odyssey HealthCare (ODSY). (In total, there are 225 stocks on today's Zacks #1 Rank List.)

RHB develops, markets, and manages comprehensive medical rehabilitation programs and therapy services in acute-care hospitals, skilled nursing units and outpatient facilities. The company is associated with 1,200 hospitals and skilled nursing facilities in 42 states.

Good Trend in Earnings Estimates

Profit expectations for both this year and next have been climbing higher for weeks. Four covering analysts expect earnings of $1.46 for the year ending December 2009, which is up 12.3% over the past 2 months, including a gain of 3.5% in the past 30 days.

There are only half as many analysts currently looking at the year ending December 2010, but they too have raised forecasts. The consensus of $1.77 is 15.7% higher than 2 months ago and 6% higher than 30 days ago. Furthermore, the forecast for next year is about 21% higher than this year.

RHB Sells Phase 2 Consulting

The big news for RHB last week was the sale of Phase 2 Consulting - its healthcare management consulting division - to Premier, Inc. for an undisclosed amount. Proceeds from the sale will be used to further reduce outstanding debt.

"Given the aging population and the support for bundled Medicare payments building in Washington, we foresee a rapidly expanding demand for our continuum of post-acute care services," said President and CEO John H. Short, Ph.D. "This transaction allows us to focus more of our resources and energies on our core business."

Average Surprise of +33% Over 4 Quarters

The company's first-quarter report from May 6 not only helped earnings estimates to rise, but also made RHB the Zacks #1 Rank Top Performer for that day.

Earnings per share of 48 cents beat expectations by more than 50% and contributed to an average surprise of 33% over the past 4 quarters.

Revenues increased 11.6% to $203.4 million in the quarter, versus $182.4 million last year. The company's Skilled Nursing Rehabilitation Services (SRS) division reported a 9.5% increase in operating revenues to $123.1 million. Meanwhile, operating revenues for the Hospital Rehabilitation Services (HRS) division moved higher 7.2%, while operating revenues at the Hospital division advanced 28.6%.

Zacks Investment Research

Chicago, IL - June 16, 2009 - Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Community Health Systems Inc. (CYH), Universal Health Services Inc. (UHS), Merck & Co., Inc. (MRK), Schering-Plough (SGP) and Johnson & Johnson (JNJ).

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Here are highlights from Monday's Analyst Blog:

Cuts in Healthcare Spending

The actual breakdown of the $313 billion proposed cuts includes: $110 billion in productivity adjustments to Medicare payment updates; $106 billion in reduced hospital subsidies for treating the uninsured as coverage increases; $75 billion from Medicare Part D drugs; and, $22 billion from "Other."

The President added that these measures would extend the solvency of Medicare's Hospital Insurance Trust Fund by seven years to about 2024, and reduce beneficiary premiums for physician and outpatient services by about $43 billion over the next 10 years. As Congress continues to draft legislation, it remains to be seen whether the government will take a position or gain the necessary support for a "public fund" option.

We currently rate both our hospital operators, Community Health Systems Inc. (CYH) and Universal Health Services Inc. (UHS), with Hold recommendations. Nonetheless, our preferred exposure in the sector would be in UHS given its relatively well-diversified revenue mix and the growing contribution of higher margin behavioral services.

Merck Needs Schering-Plough

Based on our earnings model, we expect Merck & Co., Inc. (MRK) to post flat EPS growth from 2008 - 2013 due to the combination of patent expirations of key drugs, recent pipeline failures and softening sales of Gardasil and Singulair.

The proposed merger with Schering-Plough (SGP) is clearly an attempt to address Merck's slowing sales and EPS growth. Schering-Plough has relatively little exposure to patent cliffs through 2013 and possesses one of the strongest late-stage pipelines in big-pharma.

The deal will add immediate synergies relative to the Vytorin/Zetia joint venture and should offer little overlap in currently marketed products and pipeline compounds. Given the minimal product overlap and relative ease in combining the cholesterol business, we would expect the combination to provide significant synergistic opportunities with combining sales, marketing, research and other back-office functions.

The merger is expected to be slightly accretive to non-GAAP EPS in the first full year, and significantly accretive afterwards. Merck believes that the merger will result in non-GAAP EPS annual growth in the high-single digits from 2009 - 2013 (using Merck's stand-alone non-GAAP EPS as the 2009 base). This is premised on producing $3.5 billion in annual cost savings but apparently not dependent, according to Merck, on retaining rights to Remicade and golimumab.

Given that we model combined sales of both drugs to be over $3.5 billion in 2013, we are skeptical that their guidance is reasonable if they lose the ex-U.S. rights to both compounds.

The merger is expected to close in the fourth quarter. We believe it's in Merck's best interests to get the deal done, notwithstanding potentially material concessions to Johnson & Johnson (JNJ) relative to rights to Remicade and golimumab.

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* China's Tengzhong and General Motors (OTC:GMGMQ) affirmed talks regarding sale of the Hummer brand

* Aetna (NYSE:AET) lowered its 2009 earnings forecast, citing higher medical costs from its commercial plans and lower-than-estimated revenues from its Medicare business. The firm dropped its 2009 operating earnings guidance to $3.55 to $3.70 a share, from its prior view of $3.85 to $3.95 a share.

* Williams-Sonoma (NYSE:WSM) reported a fiscal first quarter loss of 14 cents per share, beating estimates by 7 cents a share, as revenues plunged 21.7% year-over-year to $612 million. The firm issued inline revenue guidance of $2.81 billion to $2.93 billion, versus the Street estimates of $2.87 billion

* Joy Global (NASDAQ:JOYG) reported fiscal second quarter earnings of $1.17 per share, beating estimates by 28 cents, as revenues jumped 9.6% year-over-year to $924 million. The firm issued upside guidance of $3.80 to $4.00 per share, but lowered its 2009 revenue view to $3.5 billion to $3.6 billion

* Morgan Stanley (NYSE:MS) upgraded JP Morgan (NYSE:JPM) shares, raising the 2009 earnings estimate to $1.79 a share from $1.74 and versus the Street's $1.50, as well as for 2010 to $3.81 from $3.63, compared to consensus estimates of $2.73

Company Description

LHC serves Medicare beneficiaries in the southern U.S. with post-acute healthcare services. In addition to home health care the company provides hospice services through facilities as well as long-term care hospital and rehab clinics.

Another Great Quarter

LHC released first-quarter results on May 6 that included a 49% increase in net revenue to $125 million, from $84 million last year. Revenues generated through home-based services lead the way with a 60% increase to $109 million, up from $68 million.

Earnings per share beat estimates by a double-digit percentage once again. EPS was $0.62, 29% higher than the forecasted $0.48. Net income was also more than double the $0.30 earned in the same quarter last year.

Bullish Guidance, Estimates Up</b?

After the company raised the median of its revenue guidance to $505 million, from $490, analysts began raising full-year earnings estimates. Since the report was released 9 out of 10 analysts have raised current year guidance, bringing the consensus to $2.24, up from $2.09.

The current year projection would yield earnings growth of 30%. Next year's consensus of $2.40 would be a growth rate of 7%.

Great Valuations

Not only does the company have great growth projections, but shares are trading at a good value as well. Currently the stock is valued at 12 times trailing earnings and less than 11 times forward earnings. The PEG ration is just 0.6.

The Chart

Shares of LHGC have been quite volatile due to political risk regarding Medicare spending, however the company maintains a spotless track record when it comes to earnings. Take a look at the chart below.

Zacks Investment Research

A synopsis of today's Industry Outlook is presented below. The full article can be read at http://at.zacks.com/?id=2678.

Health technology holds promise of improved operating efficiencies for many parts of the healthcare industry, hospitals included. However, in the short term those that stand to benefit the most from the stimulus are the companies whose business models are based on information technology platforms.

One such company is BioScrip, Inc. (BIOS) , a specialty pharmacy services provider and pharmacy benefit manager. Bioscrip operates two interrelated business segments, namely: Specialty Services, which is comprised of specialty pharmacy distribution and clinical management services; and PBM Services, which is comprised of pharmacy benefit management and traditional mail services. We currently rate the stock of BioScrip a Buy.

Despite our currently neutral stance on managed care providers overall, we continue to rate WellPoint (WLP) as a Buy given its broad product offering, geographic reach and potential for added synergy gains from relatively recent acquisitions. That said, we believe the recent action by CMS to suspend the company from enrolling new patients in the health insurance Medicare Advantage plan and the prescription drug benefit, Medicare Part D will add to negative sentiment in the short term. We believe the action by CMS is reversible and highlights operational issues that can be addressed by management in the short term.

Another current Buy recommendation is NovaMed Inc. (NOVA). NOVA is an emerging healthcare services company engaged in the operation of ambulatory surgery centers (ASCs) and the provision of optical products and services to eye-care professionals. We remain positive with the company's performance to date, given the continued strength of cash flows from operations and same facility revenue growth.

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The performance of the Zacks Rank portfolios shown above for annual and year-to-date periods are the linked monthly total returns (price changes + dividends) of equal weighted hypothetical portfolios, consisting of those stocks with the indicated Zacks Rank, assuming monthly rebalancing and zero transaction costs. These are not the returns of actual portfolios. The hypothetical portfolios were created at the beginning of each month from Jan 1988 forward based on the values of the Zacks Rank available to Zacks' clients before the beginning of each month.

The portfolios created monthly from 1988 through September 2006 exclude ADRS and are comprised of stocks that have the indicated Zacks Rank and were covered by at least two analysts at the time of the stocks inclusion in the portfolio. Starting in October 2006 and going forward, the portfolios are comprised of all stocks with the indicated Zacks Rank and do not exclude ADRs, which is more reflective of the list of stocks that customers will find on the Zacks web sites. 2007 returns are for the period of Jan 1 - Jun 30, 2007. These performance numbers have been audited from 1995 through 2003 by Autschuler Melovan, a division of American Express Financial.

Earlier in February, the $787B economic stimulus package was passed in the Senate and House. The $150B in planned healthcare spending will include $25B towards the expansion of COBRA, $20B for health technology, and $85B for Medicaid assistance to states. The package clearly aims to improve the infrastructure of the healthcare industry and ultimately lower costs and expand access to more Americans.

OPPORTUNITIES

Health technology holds promise of improved operating efficiencies for many parts of the healthcare industry, hospitals included. However, in the short term those that stand to benefit the most from the stimulus are the companies whose business models are based on information technology platforms.

One such company is BioScrip, Inc. (BIOS), a specialty pharmacy services provider and pharmacy benefit manager. Bioscrip operates two interrelated business segments, namely: Specialty Services, which is comprised of specialty pharmacy distribution and clinical management services; and PBM Services, which is comprised of pharmacy benefit management and traditional mail services. We currently rate the stock of Bioscip a Buy.

Despite our currently neutral stance on managed care providers overall, we continue to rate WellPoint (WLP) as a Buy given its broad product offering, geographic reach and potential for added synergy gains from relatively recent acquisitions. That said, we believe the recent action by CMS to suspend the company from enrolling new patients in the health insurance Medicare Advantage plan and the prescription drug benefit, Medicare Part D will add to negative sentiment in the short term. We believe the action by CMS is reversible and highlights operational issues that can be addressed by management in the short term.

Another current Buy recommendation is NovaMed Inc. (NOVA). NOVA is an emerging healthcare services company engaged in the operation of ambulatory surgery centers (ASCs) and the provision of optical products and services to eye-care professionals. We remain positive with the company's performance to date, given the continued strength of cash flows from operations and same facility revenue growth.

WEAKNESSES

Medicaid-focused managed care providers are, to some degree, countercyclical and often perform well in mild recessions. However, and despite the $85B allocated to Medicaid in the stimulus, we remain cautious at this point, given the severity of the current economic downturn and uncertainties surrounding healthcare reform. Unlike other managed care players, Medicaid managed-care companies are highly reliant on funding from state governments, which in turn are subject to budgetary constraints and policy changes at the federal level.

We expect hospitals to gain some relief from the $15B in Medicaid assistance earmarked for immediate distribution to help close budget gaps coupled with the expansion of COBRA. COBRA provides temporary continuation of health coverage in the event of a job loss.

However, we believe the hospital sector will remain under pressure for the remainder of 2009 given anticipated lower consumer spending, high unemployment, and shifts in payer mix further already weakening 4Q08 admission numbers and increasing bad debt levels. We note that hospitals by law must treat all patients in need of emergency care, regardless of whether they have insurance.

We currently rate both Community Health Systems (CYH) and Universal Health Services, Inc. (UHS) with Hold recommendations.Zacks Investment Research

Company Description

RehabCare provides rehabilitation program management services at over 1,200 hospitals and skilled nursing facilities in 42 states. The company also operates freestanding rehabilitation hospitals and long-term acute care hospitals across the country.

Revenue Jumped 11.6% in the First Quarter

On May 5, RehabCare reported first quarter results which surprised on analysts' estimates by 54.84%, or 17 cents a share. Earnings per share were 48 cents compared to 25 cents per share in the year ago period. Analysts expected 31 cents.

Revenue grew by 11.6% to $203.4 million compared to a year ago fueled by growth in each segment. The Skilled Nursing Rehabilitation Services segment had a stronger than expected performance, with growth of 9.5%, primarily due to strong same store revenue growth, exceptional average daily census (ADC) and strong productivity.

The Hospital Rehabilitation Services segment saw revenue increase 7.2%. Inpatient operating revenues improved 6.7% and inpatient rehabilitation facility same store discharges climbed 1.1% compared to the year ago period.

Balance Sheet

The company continues to whittle at its debt. At the end of March, the company had $38.2 million in cash and cash equivalents and $57 million in outstanding debt. Net debt (outstanding debt less cash and cash equivalents) fell to $18.8 million at the end of March compared to $60.5 million in the year ago period.

2009 Outlook

The company is cautious about the rest of the year despite the outstanding first quarter. RehabCare believes that unit growth may be impacted by the current credit environment going forward. Downward pricing pressure may also occur in the fourth quarter due to the proposed rule for fiscal year 2010 Medicare reimbursement in skilled nursing facilities.

The company has decided not to provide revenue or earnings per share guidance for the year.

Consensus Estimates Rise

Despite the lack of guidance and cautious words from the company about the economic conditions for the rest of the year, covering analysts are more bullish. Second quarter estimates are up 4 cents to 37 cents per share in the last month.

Full-year consensus estimates jumped 8.5% to $1.41 from $1.30 in the last 30 days.

Value Fundamentals

RehabCare Group is a Zacks #1 Rank (strong buy) stock. The company trades at 12.5x forward earnings and has a price-to-book of 1.32.

Zacks Investment Research