CVH is a regional managed care company with operations in the mid-Atlantic, Midwest and parts of the South. The company offers commercial risk-based insurance and has an expanding business in the government-sponsored Medicaid and Medicare programs. Problems with a recently-acquired three-year contract to provide managed care services to the Medicaid population in Kentucky caused the company to significantly reduce earnings guidance for 2012. This led to a large drop in the stock price. We believe the issues related to the Kentucky contract are manageable and finite, and CVH will return to breakeven or a profit on this contract in 2013 from a loss this year. Our average purchase price of $31.22 represents 8x our forecast for 2014 earnings net of $6 per share of cash and reflects our estimate of the negative impact of Obamacare. CVH closed the quarter at $31.79 per share.
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