Mid Atlantic Medical Services Inc. of Rockville announced a smaller-than-expected third-quarter profit yesterday, but instantly won back the loyalty of investors by announcing a $40 million stock buyback plan.
Shares in the managed care concern rose $1.125 to $20.25 after the company said it earned $14.4 million, or 30 cents a share, during the three months that ended Sept. 30. The profit was 6 percent better than the company's performance in the same months of 1994.
"In general, we are pleased with the outcome of the first nine months of 1995," MAMSI chairman George T. Jochum said. "We are optimistic that 1995 will prove to be a year of satisfactory accomplishment and the springboard to a very successful 1996."
However, the average estimate of 10 analysts who follow Mid Atlantic had been that the company would earn 34 cents a share in the quarter, according to Nelson Publications.
"They met our estimate of 30 cents, but we had just taken our estimate down from 34 a week ago," said Eleanor H. Kerns, a Boston-based analyst for Alex. Brown Inc. "The quarter was below expectation. There's still pressure on pricing and their Medicare business is unprofitable."
Ms. Kerns said three things drive the finances of big HMO companies: pricing, the growth in the number of new subscribers, and cost control. Mid Atlantic did poorly in two out of three.
Administrative expenses hit 10.6 percent of revenues, up from 8.8 percent a year ago, reflecting the cost of building a direct sales force to eliminate the company's dependence on independent insurance agents. Premiums per member per month fell to $126.58 from $129.69, reflecting increased competition from other HMOs. The two negatives outweighed Mid Atlantic's 29 percent growth in membership, Ms. Kerns said.
The company told analysts that it, like other HMOs, plans modest price increases in 1996.
At current prices, the buyback announced along with the earnings would take almost 2 million shares out of circulation, or about 4 percent of the 47.7 million shares outstanding.