WellPoint Lags Est., Increases Div - Analyst Blog

By Zacks Equity Research,

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WellPoint Inc. ( WLP ) reported fourth-quarter 2011 adjusted income of 99 cents per share, lagging the Zacks Consensus Estimate of $1.11 per share. Results were also 25.6% lower than $1.33 per share earned in the year-ago quarter. Adjusted income declined 34% to $347.0 million from $524.7 million in the fourth quarter of 2010.

Including net investment loss of $11.7 million or 3 cents per share, the company reported net income of $335.3 million or 96 cents per share, compared with $548.8 million or $1.40 per share in the third quarter of 2010. The year-ago quarter, however, included net investment gains of $24.1 million or 7 cents per share.

Total operating revenues for the reported quarter were nearly $15.2 billion, reflecting a 5.5% increase from $14.4 billion in the year-ago quarter. Revenue was behind the Zacks Consensus Estimate of $15.4 billion. The CareMore acquisition contributed $230 million to the revenue in 2011, while an increase in premium designed to cover overall cost trends and membership growth in the Senior business fueled the overall improvement, partially offset by a decline in fully insured Commercial membership.

During the quarter under review, WellPoint witnessed a significant jump in medical enrollment, particularly in the Senior accounts, with enrollment of 34.3 million members as of December 31, 2011, showing an increase of 2.8% from 33.3 million as of December 31, 2010. Growth of members in the National business, Senior business, State Sponsored and Federal Employee program ( FEP ) membership contributed to the increase in medical enrollment, while the membership in Local Group business remained almost flat and Individual membership witnessed a decline.

WellPoint posted a benefit expense ratio (benefit expenses as a percentage of premium revenue) of 87.6% in the reported quarter, comfortably higher than 84.5% in the fourth quarter of 2010, driven by adverse selection in certain Medicare Advantage products, higher benefit expense in the Consumer segment and Local group business, higher-than-anticipated prior period reserve development and high pre-tax income in the fourth quarter of 2010.

Segment Results

Commercial Business: Operating revenue improved 1.1% year over year to $8.6 billion in the reported quarter. Operating gains in the segment declined 15.6% year over year to $506.7 million in the fourth quarter of 2011, primarily on the back of higher prior period reserve development, reduction in the targeted margin for adverse deviation, impact of the minimum medical loss ratio requirement and lower medical costs in the Local Group business in 2010.

Consumer Business: Operating revenue increased 14.1% year over year to $4.6 billion in the quarter under review. Operating loss in the segment amounted to $4.6 million in the reported quarter, compared to operating gains of $112.0 million in the year-ago quarter. The decline was primarily due to changes in reserves and higher medical costs in the Senior business.

Other: Operating revenue in the quarter under review came in at $1.9 billion, up 6.4% year over year. Operating gains in this segment amounted to $10.4 million in the reported quarter, compared to operating loss of $19.6 million in the year-ago quarter.

Full-Year 2011 Highlights

For 2011, WellPoint generated operating income of $7.00 per share, modestly ahead of $6.74 per share in 2010. Earnings per share also exceeded the Zacks Consensus Estimate of $7.09.

Reported net income came in at $2.6 billion or $7.25 per share, including net investment gains of $92.2 million or 25 cents per share against $2.9 billion or $6.94 per share in 2010. Net investment gains of $100.2 million or 23 cents per share was included in the 2010 result, which was partially offset by an intangible asset impairment charge of $13.7 million or 3 cents per share.

Total revenue for 2011 was $60.7 billion, up 3.4% year over year from $58.7 billion and marginally exceeding the Zacks Consensus Estimate of $60.4 billion. Meanwhile total expenses also increased 4.4% over 2010 to $56.8 billion.

Financial Update

WellPoint exited the quarter with cash and cash equivalents of $2.2 billion, compared with $1.8 billion as of 2010 end. Long-term debt increased to $8.4 billion as of December 31, 2011, from $8.1 billion as of 2010 end.

Operating cash flows in the fourth quarter stood at $57.9 million, excluding $596.5 million advance payment received from the Centers for Medicare and Medicaid Services in the third quarter. Including the CMS payment, cash flow during the fourth quarter amounted to $654.4 million. In 2011, WellPoint generated operating cash flows of $3.4 billion, up substantially from $1.4 billion in 2010. Operating cash flows of 2010 included $1.2 billion of tax payments related to the 2009 sale of the NextRx pharmacy benefit management subsidiaries.

Share Repurchase

WellPoint spent $685.6 million to buy back 10.3 million shares in the fourth quarter. During 2011, the company repurchased 44.5 million shares for $3.0 billion. As of December 31, 2011, the company had approximately $4.3 billion worth shares remaining under its repurchase authorization.

Dividend Update

On January 24, 2012, the company's Board of Directors increased the company's dividend by 15% to 2875 cents per share. The increased dividend will be paid on March 23, 2012 to shareholders of record at the close of business on March 9, 2012.

During the fourth quarter of 2011, WellPoint paid a quarterly dividend of 25 cents per share.

Outlook for Fiscal 2012

WellPoint projects operating revenue of approximately $62.1 billion for fiscal 2012, while operating cash flow is expected to be at least $2.9 billion.

Besides, WellPoint expects earnings per share of about $7.60, up 8.5% from $7.00 per share earned in 2011.

In addition, WellPoint also anticipates year-end 2012 medical enrollment to be approximately 33.7 million members. Besides, benefit expense ratio is expected to be approximately 85.3% with SG&A expense ratio to be approximately 13.6%.

Peer Take

UnitedHealth Group Inc. ( UNH ), a rival of WellPoint, declared fourth-quarter 2011 earnings of $1.17 per share, substantially higher than the Zacks Consensus Estimate of $1.02.

Another competitor, Aetna Inc. ( AET ) will report its fourth-quarter results before the market opens on February 1, 2012.

WellPoint carries a Zacks #3 Rank (short-term Hold rating) and a long-term 'Neutral' recommendation.

AETNA INC-NEW ( AET ): Free Stock Analysis Report
UNITEDHEALTH GP ( UNH ): Free Stock Analysis Report
WELLPOINT INC ( WLP ): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: AET , FEP , UNH , WLP

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