Large Cap Watch List (Track at Marketocracy) member Sierra Health Services, Inc. (SIE) reported earnings and reduced its full-year earnings guidance:

Sierra had previously announced it expected to earn between $2.30 and $2.40 per share for 2007. The Company now expects to earn between $1.76 and $1.86 per share for the year 2007. This revised guidance includes $48.8 million, or $0.54 per share, in expected losses from the Company’s enhanced benefits PDP product offering along with costs associated with its pending merger with UnitedHealth Group.

When Sierra initially reported the problems with its PDP line, we pegged the over/under at $0.42 and said:

On this announcement the stock fell just 4.5%, which could suggest that:

• The market believes the impact will be less than $0.42 this year
• The company will be able to raise prices and recover the losses in future years

There may also be other explanations, which we would be happy to hear.

The other explanation, of course, was the announcement that the company would be acquired by United Health (UNH) for $43.50 per share in cash. And that is why, even though the company’s loss fell on the “over” side of our estimate, it just doesn’t make any difference.

Finally, a CFO departure we don’t have to worry about.

Sierra Health Services, Inc. - Investor Relations - SEC Filings

Paul H. Palmer, senior vice president, chief financial officer and treasurer of Sierra Health Services, Inc. stepped down from his current positions effective April 6, 2007. Mr. Palmer will remain with the company until his retirement on May 4, 2007. Mr. Palmer’s intention to retire was announced on August 16, 2006.

Not only was the retirement announced far in advance, but the company is being acquired.

With the end of the first quarter approaching, it is time to adjust the names in our Watch Lists. We will price all the new lists as of the close on Friday, March 30. Today we present our planned updates to the Large Cap Watch List (Track at Marketocracy).

Though less than the Small Cap Watch List and Mid Cap Watch List (Track at Marketocracy), there was still relatively high turnover in this list. 14 of the original 33 names made the cut for the new list (which was trimmed to just 26 names.) Part of the reason for the turnover was to reduce overlap between the lists. One third of the Mid Cap Watch List (Track at Marketocracy) names appear on each of the Small Cap and Large Cap Watch List (Track at Marketocracy)s, but there is no longer any overlap between small and large.
So without further ado, the names on the chopping block from the previous list are:

3M (MMM); Continental (CTTAY.PK); Mitsui (MITSY); Anheuser-Busch (BUD); ConocoPhillips (COP); Helix Energy (HELX); IndyMac Bancorp (NDE - Annual Report); Barr Pharmaceutical (BRL - Annual Report); Quest Diagnostics (DGX); Public Storage (PSA); ITT Educational Services (ESI); Equifax (EFX); Rent-a-Center (RCII); Kroger (KR); Ricoh (RICOY); First Data Corp. (FDC); Expeditors International (EXPD); and Keyspan (KSE).

The new list is:

Sierra to Incur Loss on Enhanced Medicare Part D Prescription Drug Product Offering: Financial News - Yahoo! Finance

Sierra Health Services, Inc. (SIE) today announced that it expects to incur a loss in its 2007 fiscal year from the enhanced version of its Medicare Part D Prescription Drug Program (PDP) product offering. Based on its claims experience for the month of January, Sierra expects pharmacy costs on this product to be higher than previously projected. For the month of January, the only month for which full claims data is currently available, the Company has incurred pre-tax losses of approximately $3 million, or $2 million after tax, from the enhanced product. After completing discussions with the Centers for Medicare and Medicaid Services (CMS) and analyzing data, including additional claims history, Sierra expects to develop a best estimate of the losses associated with the enhanced product and record a premium deficiency reserve in the first quarter, for the entire 2007 period. This best estimate is expected to be developed within the next 45 to 60 days.The Company’s earnings per share guidance for 2007 did not include a contribution from the enhanced PDP product. Sierra remains comfortable with its original guidance of $2.30 to $2.40 per diluted share, excluding the expected impact of losses for this enhanced product.

Given that the company’s initial estimate of the cost (the one they used to set their premiums) was off by so much, it is only natural that the company wants to take its time figuring out the full-year impact. But given the $2 million after-tax loss in January, allow us to hazzard a guess that the full year impact will be approximately 12 x $2 million, or $24 million. If we use that as the over/under, the per-share impact would be about $0.42.

On this announcement the stock fell just 4.5%, which could suggest that:

• The market believes the impact will be less than $0.42 this year
• The company will be able to raise prices and recover the losses in future years

There may also be other explanations, which we would be happy to hear.

Summary:

The spread between corporate and treasury bonds has been holding steady near its long term (since 1962) average but toward the low end of the more recent history. The low spreads should be positive for the stock market and capital spending, as it reduces the cost companies pay for capital. We’d hate to see what the market and capital spending would look like if the spread widened.

Watch List news:

The Watch List returned 2.86 percent in its first week, which was better than the S&P 500 but not as good as the mid- or small-cap indices that are probably a better comparison. We have now indexed the Watch List to 100 effective at the June 30 close (it was billed as the Watch List for Q3, after all) and will monitor it on that basis going forward.

Here are a few news items that affected Watch List names and that we didn’t give a separate post.

Valassis Communications (VCI) cut its earnings outlook

Valassis decreased its second quarter earnings per share guidance to a range of 38 cents to 42 cents, versus earlier guidance of 49 cents to 55 cents. Full-year expectations were trimmed to a range of $1.60 to $1.80 from a previously range of $1.95 to $2.15.

Analysts polled by Thomson Financial were expecting earnings of 51 cents for the quarter and $1.99 for the full year.

The company cited a slowdown in sales and pricing pressure in both its free-standing insert business and neighborhood-specific advertising. The company also said a suspension of its stock buyback program would effect earnings per share.

Accredited Home Lenders Assumed Aames Financial’s Wholesale Operations Ahead of Merger

Accredited Home Lenders Holding Co. (LEND), a mortgage company specializing in non-prime residential mortgage loans, announced today that it would absorb the wholesale operations of Aames Investment Corporation (AIC) under an agreement dated June 23, 2006. This move is designed to reduce employee attrition and maximize the expected synergies from the combination of the Accredited and Aames wholesale operations that would otherwise occur as part of the merger of Accredited and Aames contemplated to occur in the third quarter of 2006.

Conoco Phillips (COP) is open to new deals. Among them - a stake in a natural gas pipeline.
Sierra Health (SIE) got some more credit. At a lower rate.

American International Pasta (PLB) still likes Sysco, but wants to see other distributors. But if they don’t file their 10K by the end of the year, they could be delisted.

Mario Gabelli’s Broken Legacy (GBL)

Birinyi thinks it may be time to look at the homebuilders again. (NVR, OHB, TOL)

Copper surplus? (FCX - Annual Report)

If Microsoft revolutionizes business communications, Plantronics (PLT) will be there to help.

Dade Behring (DADE) is changing auditors.

Brazil’s Gerdau (GGB) bought Peru’s Siderperu.

Luxury soup (CPB).

Gold bugs think the Fed is too soft on inflation. (GG, GLG)

Lakeland Industries (LAKE) announced a largely pointless stock dividend.

Par Pharmaceuticals (PRX) to manufacture generic version of high blood pressure treatment Norvasc starting in late 2007.

UT Starcom (UTSI) filed its previously delayed reports.

Libbey (LBY) sets table for Mexican dinner.

Heineken starts up Indian JV.

Helix (HELX) closed the buyout of Remington Oil and Gas.

Stifel Nicolaus likes the beer stocks.