Medibank's improving outlook
Recommendation
Medibank Private's share price has jumped 10% after the company announced a surprisingly optimistic forecast for its interim result, which is to be released on February 19.
Australia's largest private health insurer said it expects its insurance operating profit for the six months to December to be about $270m, up from $174m in the prior corresponding period.
Management said the result reflects 'better than expected claims expense outcomes as a consequence of Medibank's payment integrity program, improved hospital contracting and product and mix changes, as well as a slowdown in the growth of hospital utilisation rates'.
The company reduced its forecast for full-year growth in premium revenue from 'above 5.5%' to between 4.5% and 5.0%. Operating profit, however, is likely to come in well ahead of expectations, with the target revised to 'above $470m' – $100m more than the previous estimate.
The stock has risen 10% since Medibank & NIB: Results 2015 from 24 Aug 15 (Hold – $2.26). We're increasing our recommended Sell price on account of the the improving outlook and we'll review the company, and Buy price, in detail at the release of the interim result in February. HOLD.