CHICAGO, Jan. 27, 2011 /PRNewswire/ -- Zacks.com Analyst
Blog features: WellPoint Inc. (NYSE: WLP), Express
Scripts (Nasdaq: ESRX), Unitedhealth Group, Inc. (NYSE:
UNH), CIGNA Corporation (NYSE: CI) and Aetna Inc.
(NYSE: AET).
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Here are highlights from Wednesday's Analyst Blog:
WellPoint Exceeds Expectations
WellPoint Inc. (NYSE: WLP) reported its fourth-quarter
income from continuing operations of $524.7
million or $1.33 per share,
surpassing the Zacks Consensus Estimate of $1.21. This also compares favorably with the
income of $536.0 million or earnings
of $1.16 in the year-ago quarter.
WellPoint also posted its income from continuing operations of
$2.8 billion or $6.74 per share for fiscal year 2010, surpassing
the Zacks Consensus Estimate of $6.60
and the income of $2.9 billion or
$6.09 in the fiscal year 2009. The
company's earnings were in-line with the management's guidance of
above $6.60 earnings per share for
the fiscal year 2010.
The improved showing was attributable to higher operating cash
flows and the implementation of organizational changes in the
health care. The sale of NextRx pharmacy benefit management
subsidiaries to Express Scripts (Nasdaq: ESRX) in the fourth
quarter of 2009 also contributed a significant return of
capital.
WellPoint's income from continuing operations excludes net
investment gains of $24.1 million
after-tax, or approximately 7 cents
per share in the fourth quarter of 2010, and $100.2 million after-tax, or approximately
23 cents per share in fiscal 2010,
which was partially offset by an intangible asset impairment charge
of $13.7 million after-tax, or
3 cents per share.
The earnings of the fourth quarter of 2009 excluded the
after-tax net income of $2.2 billion,
or $4.79 per share, resulting from a
gain on the sale of the NextRx, partially offset by costs for
restructuring activities and intangible asset impairments.
Fiscal year 2009 excluded after-tax net income of approximately
$1.8 billion, or $3.79 per share, resulting from the gain on the
sale of NextRx, partially offset by net investment losses,
intangible asset impairments and costs for restructuring
activities.
Including these one-time items, WellPoint reported a net income
of $548.8 million or $1.40 per share in the fourth quarter 2010 as
opposed to $2.7 billion or
$5.95 per share in the prior-year
quarter. Net income in 2010 was $2.9
billion or $6.94 per share as
against $4.7 billion or $9.88 per share.
Segment Results
Commercial Business: Operating gains in the segment
increased 89.6% year over year to $600.7
million in the fourth quarter of 2010 and 27.0% year over
year to $3.1 billion in fiscal
2010.
Consumer Business: Operating gains in the segment
plummeted 29.5% year over year to $112.0
million in the reported quarter and declined 21.8% year over
year to $1.0 billion in fiscal
2010.
Other: Operating gains in this segment experienced an
operating loss of $19.6 million in
the fourth quarter of 2010, compared with an operating gain of
$100.8 million in the fourth quarter
of 2009. This was due primarily to the fact that fourth
quarter 2009 results included two months of NextRx operations prior
to its sale on December 1, 2009.
WellPoint's Others segment also faced an operating loss of
$8.8 million in full year 2010 as
compared with an operating gain of $469.4
million in full year 2009.
Evaluation of Capital Structure
WellPoint generated operating cash flow of $587.0 million in the fourth quarter of 2010 and
$1.4 billion in the fiscal year 2010,
which included $1.2 billion of tax
payments related to the 2009 sale of NextRx. At the end of
December 31, 2010, cash and
investments at the parent company totaled approximately
$3.3 billion.
As of December 31, 2010, WellPoint
had $148.5 million remaining under
its share repurchase authorization. During the reported quarter,
WellPoint repurchased 17.8 million shares for $1.0 billion and repurchased 76.7 million shares
of its stock for approximately $4.4
billion in fiscal 2010, following the sale of NextRx.
During the fourth quarter of 2010, WellPoint witnessed net
investment gains of $37.2 million
pre-tax, consisting of net realized gains from the sale of
securities totaling $47.6 million,
partially offset by other-than-temporary impairments totaling
$10.4 million.
In the prior year quarter, WellPoint experienced net investment
losses of $4.5 million pre-tax,
consisting of other-than-temporary impairments of $40.5 million, primarily offset by net realized
gains from the sale of securities totaling $36.0 million.
Comparison with Competitors
Rival company Unitedhealth Group, Inc. (NYSE: UNH)
reported its fourth quarter results on January 20, 2011 with income from continuing
operations of 94 cents per share,
better than the Zacks Consensus Estimate of 90 cents. Full year EPS was $4.10, which also surpassed the Zacks Consensus
Estimate of $3.99. WellPoint's peers
like CIGNA Corporation (NYSE: CI) is scheduled to report its
fourth quarter and fiscal year 2010 results on February 3, followed by Aetna Inc. (NYSE:
AET) on February 4.
Outlook for Fiscal 2011
WellPoint anticipates a net income of at least $6.30 per share.
Our Recommendation
Though we are pleased with the strong results of WellPoint along
with solid capital management, we remain wary of the impact of the
health insurance reforms and expect these reforms to increase
unemployment and stretch profit margins of WellPoint and its
competitors. The resulting downward pressure is likely to
overshadow the stock.
WellPoint has a strong cash flow generation, leading market
share positions, diversified product portfolio, proven track record
of execution, attractive valuation, and consistency that would
provide long-term value to its investors. Meanwhile, WellPoint has
been increasing its premiums and controlling costs.
Further, WellPoint is well positioned among its peer group and
has been strengthening its portfolio through its acquisition
strategy, the synergies of which are expected to lead to margin
expansion and top-line growth. Moreover, the sale of its in-house
pharmacy benefits business to Express Script has strengthened its
balance sheet and fueled a major stock repurchase.
Currently, WellPoint carries a Zacks #3 Rank, which translates
into a short-term Hold recommendation, indicating no clear
directional pressure on the stock over the near term.
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