IBJNews

WellPoint shares droop despite profitable quarter

Back to TopCommentsE-mailPrintBookmark and Share

WellPoint Inc.'s third-quarter earnings trumped Wall Street expectations, but the health insurer's stock tumbled Wednesday after President Barack Obama won re-election, a victory that could help cement 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 it also imposes fees and restrictions on the sector that are expected to squeeze profits for companies like WellPoint, which focuses large portions of its business on covering individuals and employees of small businesses.

Shares of WellPoint dropped 5.5 percent, or $3.35, to close at $57.85 Wednesday.

Citi analyst Carl McDonald said in a research note the company'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 earned $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 $15.13 billion, which fell short of analyst expectations for $15.3 billion in revenue.

WellPoint said its enrollment slid more than 2 percent to about 33.5 million people compared to last year. Losses in individual and employer-sponsored health coverage more than offset gains the insurer made in its Medicaid and Medicare businesses.

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 morning's stock decline blunted the 5-percent growth shares had seen since Braly left.

While the overhaul is expected to give insurers millions of new customers, the industry will pay a hefty price for that additional business.

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.

Analysts have said that insurers like WellPoint will see their profit margins squeezed the most by these limitations and premium spending rules.

But Morningstar analyst Matt Coffina said Wednesday 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 when coverage expands.

In July, WellPoint lowered its 2012 forecast to adjusted earnings ranging from $7.30 to $7.40 per share. It reaffirmed that forecast on Wednesday.

Analysts expect, on average, earnings of $7.38 per share.

ADVERTISEMENT

  • Agreed...
    For-profit health insurance only cost to healthcare as they function as unnecessary middleman. The federal government could do it much more cost effectively and we could utilize the private sector to process the claims. Hopefully, people wake-up one day and realize there IS a better way.
  • What is Wellpoint profiting on anyway?
    Wellpoint does not provide health care to anyone. What exactly are investors "investing" in? The virtual certainty that people need health care for preventive reasons, to cure an ailment, to avoid early death and to minimize human suffering? Why should anyone who does not offer health services profit from the provision of health care by others? The profit motive drives up everyone's costs, and hurts small businesses that want to offer health coverage to employees.

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by
ADVERTISEMENT

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
 
Subscribe to IBJ
  1. I never thought I'd see the day when a Republican Mayor would lead the charge in attempting to raise every tax we have to pay. Now it's income taxes and property taxes that Ballard wants to increase. And to pay for a pre-K program? Many studies have shown that pre-K offer no long-term educational benefits whatsoever. And Ballard is pitching it as a way of fighting crime? Who is he kidding? It's about government provided day care. It's a shame that we elected a Republican who has turned out to be a huge big spending, big taxing, big borrowing liberal Democrat.

  2. Why do we blame the unions? They did not create the 11 different school districts that are the root of the problem.

  3. I was just watching an AOW race from cleveland in 1997...in addition to the 65K for the race, there were more people in boats watching that race from the lake than were IndyCar fans watching the 2014 IndyCar season finale in the Fontana grandstands. Just sayin...That's some resurgence modern IndyCar has going. Almost profitable, nobody in the grandstands and TV ratings dropping 61% at some tracks in the series. Business model..."CRAZY" as said by a NASCAR track general manager. Yup, this thing is purring like a cat! Sponsors...send them your cash, pronto!!! LOL, not a chance.

  4. I'm sure Indiana is paradise for the wealthy and affluent, but what about the rest of us? Over the last 40 years, conservatives and the business elite have run this country (and state)into the ground. The pendulum will swing back as more moderate voters get tired of Reaganomics and regressive social policies. Add to that the wave of minority voters coming up in the next 10 to 15 years and things will get better. unfortunately we have to suffer through 10 more years of gerrymandered districts and dispropionate representation.

  5. Funny thing....rich people telling poor people how bad the other rich people are wanting to cut benefits/school etc and that they should vote for those rich people that just did it. Just saying..............

ADVERTISEMENT