WellPoint Healthier Than It Looks

Healthcare reform certainly does not look like it will do any favors for WellPoint (NYSE: WLP), one of the largest health insurance providers in the country (and the largest in terms of covered members). After all, it is never good news when the government steps in and effectively decides what your cost of goods should be. Even so, investors seem to be underestimating the inherent earnings power and value of this well-run company.

The Quarter That Was
WellPoint was not exactly at the peak of health this quarter. Operating revenue fell almost 6%, with a 5% decline in premium revenue and a 1% decline in membership. WellPoint also saw an increase in its benefit expense ratio, as the figure moved up to 83.8% from 82.1%. This increase was a byproduct of reduced federal reimbursement, as well as resistance to rate increases in California. 

Moving along, the company did a decent job of controlling expenses. SG&A was down almost 8% from last year's level and about 3.3% over the equivalent nine-month period. Nevertheless, operating income fell 19% as margins in the consumer business segment decreased by 620 basis points. On a more positive note, the company continues to spend a huge amount of its surplus cash on its own shares - buying back more than $3 billion in shares so far and targeting up to $4 billion for the full year.


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