UPDATE: Investors sell WellPoint shares

January 23, 2008
Shares of WellPoint Inc. fell 4.7 percent this morning after the Indianapolis health insurer announced strong fourth-quarter financial performance but also said it failed to attract as many new customers as it expected.

The stock was trading near $75 after closing yesterday at $78.75.

The Indianapolis-based health insurer added 708,000 customers in 2007, missing its estimate of 800,000 the company gave in October. The company added just 4,000 new customers in the fourth quarter, which ended Dec. 31.

In the quarter, a 7-percent jump in premium revenue helped WellPoint earn profit of $1.51 a share per share. That total equaled the expectations of analysts, according to a survey by Thomson Financial. Net income totaled $859.1 million and revenue totaled $15.56 billion.

WellPoint also ratcheted down its customer expectations for 2008. The company lowered its anticipated customer gains for 2008 to 800,000, down from an estimate of 1 million the company announced to investors six weeks ago.

WellPoint struggled to retain customers buying insurance as individuals or through local employer groups. It lost 201,000 customers in those areas in 2007, with those losses occurring in WellPoint's plans that are not part of the Blue Cross and Blue Shield brand.

In 2008, WellPoint stands to lose 289,000 customers it now serves through contracts it has with the Medicaid programs in Connecticut and Ohio. WellPoint said it posted operating losses on those state-sponsored plans in 2007 and will not continue the business unless it can charge "financially responsible" rates. Those losses would nearly erase the 292,000 Medicaid customers WellPoint gained in 2007.

"We do have some process improvements around the way we enter markets and the way we contract with states," WellPoint CEO Angela Braly said in a conference call this morning. "So we're going to stay incredibly disciplined based on some of the process improvements we saw in 2007."

WellPoint enjoyed the most success landing multi-state employers, which like the broad network of health care providers that WellPoint has contracts with. Such employers added 537,000 customers to WellPoint's rolls in 2007.

WellPoint boasts the largest number of customers of any health insurer in the nation.

In its fourth quarter, the percentage of revenue WellPoint spent on paying benefits to its customers rose to 82.9 percent, up 1.9 percentage points from the year-ago period. That benefit expense ratio rose to 82.4 percent for the year, up from 81.2 percent last year.

WellPoint said the 2007 rise in benefit expenses was offset by a drop of its overhead expenses to 14.5 percent of revenue, down from 15.7 percent in the prior year.

For all of 2007, WellPoint earned $5.56 per share on revenue of $61.1 billion. Net income for the year was 15.3 percent higher than in 2006.

WellPoint forecast per-share profit of $6.41 in 2008, and said it could buy back more than $4 billion of its own shares during the year. Wall Street analysts expect 2008 earnings of $6.43 per share.

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