WellPoint ( WLP) looks like the picture of health.

Following a big merger last year that left it ranked as the largest managed care player in the country, WellPoint managed to more than double both its revenue and its profit during the third quarter. The company also grew earnings per share by 20% to $1.02, topping the consensus estimate by a penny.

Looking ahead, WellPoint raised its full-year guidance by 2 cents and expects to report operating profits of $3.99 a share. Wall Street was expecting that much already.

The company also reiterated its pledge to increase next year's earnings by 15%, with more specific guidance expected in early December. In the meantime, the company saw plenty of reason to celebrate its latest accomplishments.

"Our third-quarter results further build upon a very successful year," CEO Larry Glasscock said, "in which we have delivered more products and services to our members than ever before."

WellPoint's third-quarter revenue of $11.2 billion did come in a bit light, with analysts expecting $11.4 billion instead. But the company's net income rocketed 165% to $641 million, and its operating cash flow reached $928 million during the latest period.

The company benefited from membership gains across every business line and every region in which it operates. All told, it now serves 29 million customers.

In addition to membership growth, moderating medical cost trends and merger synergies helped lift the company's results. The company's medical cost ratio of 79.9% dropped from 83.7% a year ago and came in better than some experts had expected. Its merger-related synergies of "at least $40 million" matched management's guidance.

Going forward, WellPoint plans to capitalize on new opportunities and keep growing its membership base.

"We expect that our new Medicare products will be well received in the marketplace, as they will offer access to more affordable health and prescription drug plan options than previously available," Glasscock said. And "we are also anticipating good national accounts growth, having already secured a number of new accounts for the first of the year."

WellPoint's stock, which has nearly doubled over the past year, was unchanged at $76.09 a share in premarket trading.

Looking Fit

Of course, many experts had assumed that WellPoint would continue to look fit.

For example, Citigroup analyst Charles Boorady predicted last week that WellPoint would beat both Wall Street's expectations and the company's own guidance for third-quarter profits. Looking ahead, Boorady also established a 2006 profit target of $4.95 that is well ahead of the current consensus estimate.

In contrast, however, Bear Stearns analyst John Rex was looking for a slight third-quarter miss. Still, he accurately predicted that the company, like others in the group, would continue to enjoy moderation in its medical cost ratio.

Boorady actually suggested buying the stock, in part, as a result of that moderation. When medical costs fall, he noted, managed care companies come out ahead at the expense of other healthcare players. Thus, he touted WellPoint as an attractive hedge for investors who like the healthcare space.

"WellPoint remains one of our best stock ideas, and we see managed care stocks overall as a good 'hedge' for healthcare investors because medical expense -- the biggest expense item for managed care organizations -- is the revenue for healthcare product manufacturers and service providers," Boorady explained. "Therefore, any unexpected deceleration in revenues for other healthcare companies could result in lower expenses -- and, therefore, higher earnings -- for managed care."

To be sure, WellPoint has enjoyed a stellar performance so far. The company's stock has rocketed 98% -- while the Standard & Poor's has risen just 7.7% -- over the past year.

Brand Loyalty

Morgan Stanley analyst Christine Arnold assumed that WellPoint would meet Wall Street expectations exactly. She also foresees even better news to come.

For one thing, Arnold believes that WellPoint can boost next year's results by enrolling crowds of seniors who currently have no drug coverage but will be looking to add it under the new Medicare Part B plan. In the meantime, she says, the company already seems to be gaining a number of new customers under its small group and individual plans.

"This segment makes up about half of WellPoint's commercial enrollment" right now, noted Arnold, who has an equal-weight rating on the stock. But "brokers overwhelmingly agreed that the carrier is gaining business due to its strong brand name and reasonable prices."

Boorady likes WellPoint's strong Blue Cross/Blue Shield brand name as well. He believes it will help the company capture business in such growing areas as senior coverage and consumer-driven healthcare plans. If anything, he expects the company -- which has grown by acquiring other Blue Cross players -- to just keep getting bigger.

"While WellPoint is big -- in fact, the larger health benefit provider in the U.S. -- it will have just 10% of the U.S. population enrolled after the WellChoice ( WC) acquisition, leaving it plenty of room for continued market share gains in a growing market," Boorady wrote. Thus, "WellPoint remains our favorite stock for 2005 and among the best-positioned companies we see in the managed care space."

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