Tags: WellPoint | growth | cost | WLP

WellPoint Combines Growth, Cost Cutting

By    |   Tuesday, 03 January 2012 05:13 PM

Health insurer WellPoint (WLP) may be frustrating investors. For 2011, the company has been able to post strong member growth and do necessary cost cutting. While company results have improved, the stock price has not.

WellPoint is one of the country's largest health insurance providers, with more than 33 million members. The company primarily offers HMO, PPO and POS managed healthcare insurance plans through the Blue Cross/Blue Shield networks.

WellPoint owns the Blue licenses in 14 states. Use of the Blue Cross/Blue Shield networks in all states allows WellPoint to offer nationwide coverage. Anthem and UniCare are coverage brand names used by WellPoint.

For the first nine months of 2011 WellPoint reported total revenue of $44.7 billion, up from $43.3 billion a year earlier. Net income from operations for the period was $5.95 per share, up from $5.33 a year earlier.

In addition to income from operations, the company earned 28 cents per share from investment gains. The company reports investment gains with every quarter's results, but Wall Street analysts track the income from operations numbers.

For full year 2011 the consensus earnings estimate is $7.09 per share, compared to $6.74 in 2010. The 2012 earnings estimate is $7.75 per share.

Growing membership

For 2011, WellPoint's membership enrollment increased by 3 percent, or more than 1 million new members. At the same time, the company was able to reduce the SG&A expense ratio by 100 basis points, to 14 percent. Management projects changes in health insurance coverage rules over the next several years will be a positive in terms of continued membership growth.

WellPoint has an aggressive share buyback program. For the first nine months of 2011, the company repurchased about 9 percent of the outstanding shares at a cost of $2.4 billion. The share repurchase authorization is for up to $5 billion.

The most recent analyst reports were the reiteration of a buy rating by the analysts at UBS and an overweight rating by Barclays Capital analysts. Both groups have a target price on WLP of $20 above the current share price.

The company next reports on Jan. 25.

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Tuesday, 03 January 2012 05:13 PM
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