WellPoint Inc.
(
WLP
) has agreed to pay $90 million as settlement payment pertaining to
a lawsuit against its subsidiary, Anthem Insurance, according to
Reuters. However, the settlement is subject to the approval of a
federal judge, following which the payment will be made to over
700,000 former members of Anthem in Indiana, Ohio, Kentucky and
Connecticut.
In 2005, former members of Anthem filed a class action lawsuit
claiming that they did not receive adequate compensation for their
ownership stake in the company during its conversion from a mutual
company to a stock company in 2001.
The settlement payment is expected to reduce the earnings of
WellPoint in 2012. The company had increased its adjusted earnings
per share guidance to $7.65 in April this year.
However, the settlement payment will not have a drastic impact
on WellPoint's cash and cash equivalents, which stood at $2.3
billion as of March 31, 2012. Thus, the settlement payment amounts
to only 3.9% of the cash balance at the end of the first
quarter.
However, WellPoint is also expected to finance the acquisition
of 1-800 CONTACTS Inc., a web- and phone-based eyewear retailer,
from its cash on hand. The deal, which was announced earlier this
month and is expected to be completed in the third quarter of 2012,
is estimated to be valued at $900 million. Thus, together the
settlement payment and acquisition will reduce the cash balance of
WellPoint substantially.
Nevertheless, WellPoint generates strong cash flows. Operating
cash flow in the first quarter of 2012 amounted to $1.2 billion.
Thus, cash flow generated in one quarter will be adequate to
compensate for the cost of the acquisition as well as the
settlement payment.
The Zacks Consensus Estimates for WellPoint's second quarter
earnings is currently pegged at $2.08. This represents a
year-over-year increase of 14.1%. For 2012, the Consensus Estimate
stands at $7.76 per share, up 10.9% over 2011.
WellPoint has emerged as the largest insurer on the basis of
enrollment, nudging aside the likes of
Aetna Inc.
(
AET
),
CIGNA Corporation
(
CI
) and
UnitedHealth Group Inc.
(
UNH
).
We maintain a long-term Neutral recommendation on WellPoint.
Also, the company retains a quantitative Zacks #3 Rank (short-term
Hold rating).
AETNA INC-NEW (AET): Free Stock Analysis Report
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