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WellPoint stock surging on positive analyst forecasts

January 7, 2010

The long-term outlook for health care reform is uncertain, but many analysts are expecting big health insurers like Indianapolis-based WellPoint Inc. to benefit in 2010.

A Stifel Nicolaus analyst upgraded shares of WellPoint Inc. earlier this week, saying the stock will rise about 20 percent this year as the health insurer beats expectations and investors take a more optimistic view of the industry.

Thomas Carroll raised his rating on WellPoint shares to "Buy" from "Hold." He expects health insurer stocks to advance in 2010, now that investors understand what health care overhaul would mean for the business. He said profit expectations are modest but insurers should have a better year than they did in 2009.

WellPoint's stock has surged 7.3 percent this year. It was up 2 percent, or $1.23 this morning, to $62.61 per share.

"As the health care reform debate diminishes, we believe investors will continue their recent return to managed care stocks in the first half of 2010 with a large-cap bias," Carroll said.

Based on enrollment and revenue, WellPoint and UnitedHealth Group Inc. are the two biggest publicly traded health insurers.

Carroll expects WellPoint to earn $6.31 per share this year. On average, analysts polled by Thomson Reuters are forecasting $6.09 per share.

Carroll holds a price target of $72 per share. The shares have more than doubled in value since March, but have not traded at $72 since early 2008.

A Barclays analyst said Thursday he is expecting a strong year for health insurers that do a lot of business with Medicare, and upgraded shares of HealthSpring Inc., Humana Inc. and WellPoint.

Joshua Raskin maintained a "Positive" view on the health insurance industry, saying investors will pay more attention to the state of their business this year and less to the details of the debate over health care reform, which may be passed relatively soon. Raskin said that change in focus will help the stocks because the insurers may do better than investors expect.

"2010 will likely bring a period of calm during the storm as legislation is passed but not yet implemented," he wrote in a note to investors. He expects strong Medicare results this year, and noted that HealthSpring and Humana get a bigger portion of their profits and revenue from Medicare business than any other publicly traded managed care company.

He also said the U.S. Department of Defense may extend a contract with Humana for a longer-than-expected term. HealthSpring is focused on reducing its costs and has performed well over the last few quarters, he added.

In total, Raskin raised his price targets on 14 health insurers, including Aetna Inc., Cigna Corp., UnitedHealth Group Inc., WellCare Health Plans Inc., and WellPoint Inc.

 

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