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UPDATE: Investors cheer WellPoint earnings

July 23, 2008
Wall Street rejoiced today after WellPoint Inc. posted second-quarter profit that exceeded analysts' estimates.

Investors bid up shares of the Indianapolis-based health insurer as much as 9 percent. As of late this morning, the stock traded at $52.06, up 6.8 percent.

WellPoint stock rose along with broader markets, which surged as the price of crude oil fell.

Its profit of $750.5 million was down 10 percent from a year earlier; still, the $1.44 per share was better than the $1.36 predicted by analysts surveyed by Thomson Financial.

The good news from WellPoint followed better-than-expected earnings from Minnesota-based UnitedHealth Group. Its profit fell 73 percent in its second quarter but also exceeded analysts' expectations.

"The managed care group is now two-for-two," Oppenheimer & Co analyst Carl McDonald wrote in a note to investors.

Analysts and investors are looking to see if health insurers' troubles from earlier this year are over or will continue throughout this year.

On a conference call, WellPoint executives gave a positive, but mixed, answer.

The company raised rates to offset pricing its business too low last year and improved claims processing, which had contributed to the earlier mistake in pricing. However, Chief Financial Officer Wayne DeVeydt cautioned that those gains will be offset in the next six months by higher-than-expected claims in WellPoint's Medicare Advantage plans for seniors.

CEO Angela Braly said, "We're in this business for the long term and we will make the necessary corrections to return this product segment to [better] performance."

WellPoint also has exited some contracts it had with state Medicaid programs because, the company said, the states couldn't afford to raise rates to compensate for rising costs.

As a result, WellPoint has lost some of its 35.3 million customers. In the second quarter, the company covered 99,000 fewer people than in the first quarter, primarily because WellPoint withdrew from the Ohio Covered Families and Children Medicaid program.

The company expects its customer base to decline by 150,000 during the second half of 2008.

For the second quarter ended June 30, WellPoint posted revenue of $15.7 billion, an increase of nearly 3 percent over the same quarter last year.

The company this year has twice lowered its profit forecast due to under-pricing some products and losing customers in its most profitable, fully insured segment.

Those changes and a recent settlement of litigation in California led WellPoint to trim 10 cents from the high end of its profit forecasts for the full year. Whereas WellPoint had predicted it would earn as much as $5.67 per share this year, it now forecasts no more than $5.57 per share.

WellPoint did not change the low end of its forecast, $5.42 per share.

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