WellPoint (WLP), right alongside Cigna, has benefited more than the managed care peer group from the recent rally.
The managed care sector as a whole rebounded from a p/e level that was 40% of the broad market early in 2009, to 60% of the market more recently. Monness Crespi's Avik Roy thinks that once the public option died, WellPoint and Cigna received price bumps from an excessively discounted risk level.
WellPoint has also benefited from three consecutive quarters of improved earnings per share and net income. WellPoint also completed the sale of its pharmacy benefits business earlier this month, and Leerink Swann's Sullivan believes that sets the stage for share repurchase activity in 2010.
Leerink Swank has a 12-month valuation target of $58-$65 on WellPoint. WellPoint shares are currently near $59, with a 52-week high of just under $61.So while there is little doubt that WellPoint and Cigna are well-positioned long-term to deal with the health care reform challenges, that might not necessarily make WellPoint or Cigna the best play in 2010."There is already a fair amount priced into WellPoint and Cigna," said Monness Crespi's Roy. While many analysts think the managed care rally will continue into the first half of 2010, will underperforming stocks like UnitedHealth Group (UNH) be the big gainers? United is the most well-known example of a managed-care stock with a significant Medicare Advantage-laden business. Still, United has its bulls, given its underperformance. Miller Tabak's Funtleyder says that UnitedHealth is more diversified than the market's perception would lead an investor to think, and its commercial business should rebound along with an improvement in the economy. "We love United because it has not had the run-up of Cigna or WellPoint," Funtleyder says.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV