NEW YORK (TheStreet) -- TriNet Group (TNET) - Get Report stock is down 12.53% to $33.13 in morning trading Wednesday after Deutsche Bank lowered its price target to $35 from $40 due to insurance volatility, while maintaining its 'buy' rating.
"The medical claims volatility in its fourth quarter (of 2014) has, for now, somewhat broken the spell we had been under regarding TriNet as a different kind of professional employer organization (PEO), and reminds us of the volatility inherent in the PEO industry," analysts said.
In TriNet's fourth quarter, due to higher than expected large medical claims, medical costs were higher than expected by $10 million to $14 million, analysts noted, adding that this suggests a year over year healthcare cost growth of 10% to 11% when it was expected to be around 7%.
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"Management does not see their underwriting process as "broken" or the need to reassess the premium increase due to full year 2014 showing relatively stable overall trends in medical loss rations, overall medical cost growth being roughly in-line with expectations and large claims not being abnormally higher percent of overall claims," Deutsche Bank said.
Because TriNet's fourth quarter of 2014 free cash flow (FCF) came in stronger than expected at $51 million versus analysts' estimates of $35 million, driving 2014 FCF to $133 million versus analysts' estimates of $117, Deutsche Bank increased their FCF estimates for 2015 by 6% to $130 million from $123 million.
Deutsche Bank lowered its first quarter of 2015 earnings to 34 cents from 38 cents per share and 2015 fiscal year earnings estimates to $1.40 from $1.47 per share.
TriNet is a provider of a comprehensive human resources solution for small to medium-sized businesses.