Indianapolis, Indiana-based WellPoint Inc. (NYSE: WLP) is scheduled to report its fourth quarter earnings on January 26, 2011. In the last three quarters of FY 2010, WellPoint's reported EPS exceeded analysts' consensus estimates for quarters ended March 2010, June 2010, and September 2010, by margins of 16.80 percent, 7.70 percent, and 10.10 percent, respectively.
The healthcare benefits major is one of the largest companies in terms of medical membership in the United States, serving more that 33 million medical members. WellPoint is licensed to conduct insurance operations in all 50 states through its subsidiaries.
Wellpoint enjoys the number one market share in almost all of the 14 states in which it operates using the Blue Cross Blue Shield License. Among these Blue states, the company has a 30 percent or greater share of the market in four of them and has greater than 40 percent market share in other four states.
Q3 FY 2010, lower than comparable quarter last year
For the third quarter FY 2010, the company reported revenues of $14.3 billion, down 6 percent compared to revenues of $15.2 billion in the third quarter of FY 2009. In the third quarter of FY 2010, net income was $739.1 million, or $1.84 per share, including net investment gains of $37.9 million after-tax, or approximately $0.10 per share. This compares to net income of $730.2 million, or $1.53 per share in the third quarter of 2009, which included net investment gains of $14.1 million after-tax, or $0.03 per share, and an impairment charge totaling $134.4 million after-tax, or $0.28 per share. However, the adjusted net income for the third quarter FY 2010 was $1.74 per share, compared with adjusted net income of $1.78 per share in the last year same quarter.
Well Point raises full-year 2010 guidance
After the strong overall performance in the last three quarters, the company expects earnings to be at least $6.60 per share. The company expects its operating revenue to be $58 billion, and operating cash flows to exceed $1.2 billion. The company also expects medical enrollment to reach 33.3 million, consisting of 19.6 million self-funded members and 13.7 million fully insured members.
As the nation's largest managed care organization by medical enrollment, Wellpoint is able to use its size and nationwide presence to negotiate more favorable contracts with health care providers like physicians and hospitals, thereby reducing the amount it spends on health care benefits for members.
Well point competition includes Aetna Inc. (NYSE: AET) and United health Group (NYSE: UNH). In the last one year, Aetna has reported earnings of 3.97 per share, on revenues of $34.46 billion. United Health Group reported earnings of 3.96 per share, on revenues of $91.91billion. On the other hand, WellPoint reported earnings of 11.73 per share, on revenues of $59.41 billion.
Healthcare Reform to benefit WellPoint
On March 2010, President Obama signed into law the Patient Protection and Affordable Care Act, the much awaited and much debated health reform law. Several of its provisions will affect Wellpoint and other insurers. The law includes a large number of health-related provisions to take effect over the next four years, including expanding Medicaid eligibility, subsidizing insurance premiums, providing incentives for businesses to provide health care benefits, prohibiting denial of coverage/claims based on pre-existing conditions, establishing health insurance exchanges, and support for medical research. The expansion of Medicaid together with the health insurance mandate and premium subsidies are projected expand insurance to 32 million Americans without coverage. Wellpoint, as one of the largest insurers as well as one of the largest Medicaid contractors, stands to benefit from this.
Compared to the healthcare industry's statistics, WellPoint has a P/E ratio of 5.25, much lower than the industry's P/E of 10.47. The P/S ratio of the company is 0.41, against industry's P/S of 0.42. The quarterly revenue growth of WellPoint is a negative of -5.40 percent, compared to industry's quarterly revenue growth of 21.60 percent.
Analysts' estimates higher earnings for Q4
For the fourth quarter ending December 31, 2010, analysts' EPS estimates range from a low of $1.04 to a high of $1.44 per share, compared to the consensus estimate of $1.22 per share or $1.16 per share earned in year ago same quarter. Analysts' revenue estimates for the fourth quarter range from a low of $13.78 billion to a high of $14.64 billion, compared to a consensus estimate of $14.27 billion or $15.06 billion reported in the same quarter a year ago. For the quarter ended December 31, 2010, the consensus EPS forecast has raised the EPS to current estimate of $1.22 per share, from $1.18 estimated 30 days ago.
On January 26, 2010, WellPoint's board of directors increased the share repurchase authorization by $3.5 billion. Subsequent to December 31, 2009, the company repurchased and retired approximately 6.5 million shares for an aggregate cost of approximately $0.4 billion, leaving approximately $3.5 billion for authorized future repurchases at February 10, 2010. The company did not pay any cash dividends on its common stock for FY 2009, FY 2010.
In the last 52 weeks, the stock has been trading in the range of $46.52 and $68.36. In the last 52 weeks, WellPoint's stock has lost 9 percent in value to settle at $61.56 on January 20 1010. Based on the EPS estimates, I see a one year target price of $70.
