Is WLP Healthy for Your Portfolio?

Editor's note: This column was submitted by Stockpickr member Winston Kotzan.

As we rapidly approach the 2008 presidential elections, one political issue has reignited an old debate -- health care. A topic sure to be a critical factor in this next election will be how the candidates plan to insure the 46.6 million American citizens who have no medical insurance.

To examine this topic from an investing perspective, I performed an in-depth study of the largest health insurer by membership, Indianapolis-based WellPoint(WLP Quote - Cramer on WLP - Stock Picks).

First, Some Background

WellPoint was formed as a result of the 2004 merger between WellPoint Health Networks Inc. and Anthem Inc. It is currently the largest provider of health care plans in the U.S. by membership, with more than 34 million members as of Dec. 31, 2006. Its 2006 annual revenue of $57 billion was only surpassed by UnitedHealth's(UNH Quote - Cramer on UNH - Stock Picks) $71 billion in revenue.

As the Blue Cross Blue Shield Association licensee in 14 states, WellPoint has one of most the recognized marketing brand names and provider networks in the health insurance industry. Earlier this year, the company appointed a new CEO, Angela Braly. The company has also announced plans to restructure its internal operations into three separate business units: commercial, consumer and a comprehensive solutions unit for health care providers.

Valuation Based on Organic Growth

To determine the impact of the presidential candidates' proposals for the health care industry, and in particular WellPoint stock, I built a discounted cash flow (DCF) model for WellPoint. As a control comparison, I ran a default set of assumptions through the model.

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