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WellPoint 3Q profit up, stock down after election

WellPoint 3Q profit up, stock down after election

November 7th, 2012 by TOM MURPHY, AP Business Writer in News

INDIANAPOLIS (AP) - WellPoint Inc.'s third-quarter earnings trumped Wall Street expectations but the health insurer's stock sank Wednesday, a day after President Barack Obama's re-election helped secure the future of his health care overhaul.

The overhaul aims to cover millions of uninsured people starting mostly in 2014, which means more business for insurers. But the fees and restrictions it imposes on the sector are expected to squeeze profits, especially for companies like WellPoint that focus a large portion of business on covering individuals and employees of small companies.

Shares of WellPoint and other major health insurers fell at a steeper clip than the 2 percent decline of the Standard & Poor's 500 index in Wednesday afternoon trading.

Citi analyst Carl McDonald said in a research note WellPoint's results would be viewed "quite favorably" without the election's impact.

"There's been an undercurrent of concern among many regarding the potential for bad news out of WellPoint's third quarter earnings, but the trepidation wasn't warranted," McDonald wrote, noting that the insurer easily beat expectations.

WellPoint reported net income of $691.2 million, or $2.15 per share, in the three months that ended Sept. 30. That's up 1 percent from $683.2 million, or $1.90 per share, a year ago.

Excluding investment gains, adjusted earnings were $2.09 per share.

Analysts expected $1.83 per share, according to FactSet.

The insurer's revenue, also excluding investments, was relatively flat at $15.13 billion, and that fell short of analyst expectations for $15.3 billion.

WellPoint said its enrollment slid more than 2 percent to about 33.5 million people compared to last year. The company operates Blue Cross Blue Shield plans in 14 states, including California, New York and Ohio.

WellPoint had not recorded a quarterly increase in earnings compared to the previous year since the first quarter of 2011, and the insurer's performance had frustrated several large shareholders. Chairwoman and CEO Angela Braly abruptly resigned with about a month left in the third quarter, and the company named John Cannon, its executive vice president and general counsel, to serve as interim CEO.

Wednesday's stock decline erased the 5 percent growth shares had seen since Braly left.

For the overhaul, insurers will start paying annual fees in 2014 that total $8 billion that year and rise after that. The law also restricts how much insurers can vary their pricing based on things like age and health, key tools they use to ensure that they have enough money to pay medical claims.

The overhaul also will require them to cover everyone who applies starting in 2014, even those already sick with expensive conditions such as diabetes. Additionally, the law stipulates that insurers spend certain percentages of the premiums they collect on care or pay rebates to customers.

Aside from the fees and restrictions, investors also worry that about online exchanges that will be set up as part of the overhaul to help people compare and buy insurance policies. They're concerned that these exchanges will take customers from the more-profitable employer-sponsored coverage market, Morningstar analyst Matt Coffina said.

The overhaul also stirs worry about Medicare Advantage plans, which are privately run versions of the government's Medicare program for the elderly and disabled. The law cuts funding to these plans, and that could hurt profits in this fast-growing segment.

But Coffina also said he thinks WellPoint is positioned well for the overhaul. He said the company has experience selling individual policies and a well-recognized brand that should help it do business on the exchanges.

WellPoint plans to spend between $200 million and $300 million next year to prepare for the 2014 coverage expansions, and Chief Financial Officer Wayne DeVeydt said he expects strong enrollment growth that year.

Shares of WellPoint dropped 5.5 percent, or $3.35, to close at $57.85 Wednesday. Competitor UnitedHealth Group Inc.'s stock fell almost 4 percent, or $2.13, to $54.26. Shares of Humana Inc., which has a large concentration of Medicare Advantage business, dropped 7.9 percent, or $6, to $70.16.