It won't take a thousand words to help us see why the following one-year chart clearly signals that WLP has momentum and upside potential.
Supported by its rising quarterly revenue per share (the orange line), WellPoint shares have skyrocketed more than 56% in less than 12 months before its latest cool-down to just above $86 per share. What's been the rocket fuel that has lifted the stock of this health insurance company to a market cap of over $25.4 billion?
WellPoint is in the right business at the right time.
It provides network-based managed-care plans to large and small employers, individuals, Medicaid and senior markets in the United States. It also provides various managed care services including claims processing, underwriting, stop loss insurance and other administrative services to self-funded customers.
But the big payday for WellPoint and other health insurance administrators is the Affordable Care Act, and its provisions for expanded state Medicaid coverage through managed care plans. This is an enormous growth opportunity for companies that specialize in managing these low-income population groups.
According to a recent article by Bruce Jaspen, the feds will be dolling out big bucks starting this year:
"As state budgets have been hurt by the stagnant economy, lawmakers have turned more patients eligible for Medicaid over to privately contracted insurance companies. Now, the health law provides a cash infusion of more than $900 billion in federal dollars from 2014 to 2022 to expand Medicaid programs for states interested in the proposition."
This bodes well for WLP and its larger competitors including UnitedHealth Group (UNH), whose CEO Stephen Hemsley said on the company's recent 2013 earnings call that UNH would also be reaping the bounty of the ACA. Cash-strapped states will now look to Uncle Sam to assist more patients eligible for Medicaid by directing them to insurance companies like WLP and UNH.
As a direct result, I expect WLP revenue to improve in the year ahead. The ACA will create an enormous financial injection of more than $900 billion in federal spending starting this year to expand Medicaid programs for states who want to take advantage of this precedent-setting incentive.
WellPoint's fourth-quarter 2013 earnings conference call will be held Jan. 29 at 8:30 a.m. EST. The analysts who cover WLP are all neatly listed at the company's investor-oriented Web site. Due to the anticipated positive impact of the new health laws on both revenue and sales growth, I'll also be looking for upside earnings guidance for the current quarter and fiscal 2014.
According to Reuters, the consensus estimate of earnings per share for 2014 versus 2013 is promising. For example, in the first quarter of 2014 versus the year-ago quarter, the average EPS prediction from the analysts who follow WLP is for an 11% increase in EPS.
If the price chart above is any indicator, shares of WLP may be poised for a nice rally in the days and weeks ahead.
At the time of publication the author had a position in WLP .
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.