Updated from 9:27 a.m. EST
Analysts from a string of brokerages sang the praises of
Tuesday after it delivered strong fourth-quarter earnings growth and suggested the outlook for the industry remains bright.
"Earnings were rock solid," noted Todd Richter, an analyst at Banc of America, who maintained his buy rating on the stock. "It was another typical WellPoint quarter."
Legg Mason, UBS Warburg, SG Cowen and Merrill Lynch all reiterated their strong buy ratings Tuesday and several analysts also raised their 2002 earnings estimates and price targets.
WellPoint rose 2% to $130.63 after hitting an all-time high earlier. The Morgan Stanley Healthcare index was up 1% to 494.30, also just shy of its all-time high that it hit last week.
In a conference call, WellPoint Chief Financial Officer David Colby said he remains comfortable with the 2002 guidance provided back in December of between $7.70 and $7.75 a share. Analysts polled by Thomson Financial/First Call project earnings of $7.74 a share. Richter said he'd be "highly surprised" if guidance wasn't raised again after the release of first-quarter results.
Chairman and CEO Leonard Shaeffer said January had gotten the year off to a good start, with strong enrollment growth in California and Georgia. He expects 5% to 7% growth in membership in 2002. Net premium yield increases should average about 10% in California and "slightly higher" elsewhere, while costs should come in "at, or slightly below" those levels, he said.
Colby noted that WellPoint's stock has appreciated 240% over the past five years, more than any other health care company in the
. And yet, he said, the stock continues to trade at a discount to the broader market.
WellPoint has climbed 10% this year and is up almost 50% from last May as the industry's pricing power improved significantly, particularly after the Sept. 11 attacks. Analysts said premiums should continue to rise this year, offsetting any increase in medical costs.
At WellPoint, medical costs in Georgia were actually lower in the fourth quarter, adding 5 cents to its earnings, according to Goldman Sachs. Shaeffer said costs are being contained to some extent by an increase in generic competition and a lack of new blockbuster drugs.
"If the fourth quarter is any indication, enrollment trends should remain solid, despite the recession," said Merrill Lynch analyst Roberta Goodman. "Pricing trends appear consistent with prior expectations, and we note that Well Point has been far more effective than most companies in predicting medial cost trends accurately."
WellPoint said profits jumped 23% in the fourth quarter amid strong membership growth in its medical health plans.
The largest Blue Cross and Blue Shield operator said net income rose to $109.9 million, or $1.65 a share in the quarter, compared to $89.5 million, or $1.37 a share, a year ago. Analysts polled by Thomson Financial/First Call had expected the company to earn $1.59 a share. Revenue rose 40.2% from last year to $3.4 billion.
Membership in WellPoint's medical plans rose 29% from last year to more than 10.1 million at the end of 2001, compared with 7.9 million at the end of 2000. The increase was the result of continued sales growth and the acquisition of Blue Cross Blue Shield of Georgia, which added about 1.9 million members.
Some analysts had been concerned that health care membership would fall off this year as the unemployment rate rises, but the growth in enrollment so far suggests that isn't a problem.
WellPoint, which has been on an acquisition spree of late, said operating cash flow stood at $360 million in the fourth quarter. The company recently merged with RightChoice Managed Care, the Blue Cross and Blue Shield operator in Missouri and announced plans to acquire CareFirst BlueCross BlueShield, which it expects to close in 2003.
WellPoint joins a growing legion of managed care companies that have posted strong quarterly results. Last week,
American Medical Security Group
Oxford Health Plans
all exceeded analysts' estimates and raised estimates for the full year.
Anthem said earnings excluding realized gains and nonrecurring items increased 56% from last year, while Coventry said net income rose 9.5%. Oxford reported a 110% jump in net income and American Medical Security said profits skyrocketed 4200%. Meanwhile, United Health said profits were up 28% and Humana recorded a 32% jump in profits.
Still, some companies have struggled.
, the No. 3 U.S. health insurer, said its fourth-quarter net income fell 31% after charges related to the elimination of 2000 jobs at its customer service operations.