("UPDATE: WellPoint 3Q Profit Falls 11%; Views Topped; Year EPS
View Cut," published at 8:30 a.m. EDT, incorrectly compared the
company's new earnings forecast, which includes charges, to a prior
forecast that excluded them. A corrected story follows.)
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, recently rose 0.5% to $46.95.
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.
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.)