DOW JONES NEWSWIRES
WellPoint Inc.'s (WLP) third-quarter earnings fell 11% on asset
write-downs, but the results were better than expected, driven by
lower than seen medical costs.
Chairman and Chief Executive Angela Braly said the nation's
largest health insurer by members remains confident about the
outlook for the current quarter and expects net growth of more than
400,000 national members in January.
The managed-care industry faces concerns about Washington's
health-care debate and an expected wave of H1N1 flu this fall and
winter, in addition to remaining challenges from the recession.
WellPoint in recent quarters has shown signs of getting a better
handle on rising medical costs, and the company has introduced
more-affordable products and expanded retention programs amid the
recession.
For the quarter ended Sept. 30, WellPoint reported a profit of
$730.2 million, or $1.53 a share, down from $820.7 million, or
$1.60 a share, a year earlier. Excluding a gain of 3 cents a share
from investments and a write-down of 28 cents a share for impaired
assets, WellPoint's per-share earnings were $1.78, above the
average analyst estimate on Thomson Reuters of $1.37 a share.
Revenue rose 3.1% to $15.43 billion, also above the Thomson
Reuters estimate of $15.15 billion.
"The outperformance was largely on the medical expense line,"
Morgan Stanley analyst Doug Simpson said. WellPoint's medical-loss
ratio, or the amount of premiums used to pay patient medical costs,
fell to 81.1% from 82.5% a year earlier and 82.9% in the second
quarter.
"While the backdrop is challenging, we are encouraged by
stronger than expected Q3 results now posted by both [UnitedHealth
Group Inc. (UNH) and [WellPoint], the two biggest players," Simpson
said. UnitedHealth reported better-than-expected results last
week.
Simpson added that roughly 15 cents a share of the beat "was
from higher than expected favorable reserve development, which are
'real' earnings."
WellPoint shares, up 11% in 2009, rose 2.9% premarket to $48.05.
Simpson noted that WellPoint's valuation is about 15% below its
peers.
"This valuation is attractive as we forecast that over the next
12-15 months, WLP has $8.4B in identifiable excess cash, worth
nearly 40% of the current market cap," said Simpson, who rates
WellPoint at overweight.
For the year, the company lowered its 2009 earnings forecast to
$5.06 to $5.23 a share from $5.60 to $5.66 a share to reflect the
asset write-downs and increased usage of health benefits after an
employee loses his or her job. But revenue estimates were raised
$300 million to $60.9 billion. WellPoint also expects year-end
medical enrollment of 33.6 million members, which would be down
300,000 from Sept. 30 levels.
Medical membership fell 4.2% to 33.9 million as of Sept. 30 from
a year earlier and dropped 300,000 during the quarter.
Express Scripts Inc. (ESRX) in April agreed to buy WellPoint's
in-house pharmacy-management business for $4.68 billion. The deal,
expected to close before year-end, is a shift from a prior strategy
among health insurers to own and control their own PBMs, and could
pressure rivals to do the same.
-By Tess Stynes, Dow Jones Newswires; 212-416-2481;
Tess.Stynes@dowjones.com;
(George Stahl contributed to this report.)