It seems as though investors have made their peace with health insurance reform to some extent, as WellPoint (NYSE:WLP) shares have more than doubled off of their bottom in late 2008/early 2009. That said, major health insurance names like WellPoint, Unitedhealth (NYSE:UNH), Aetna (NYSE:AET) and Coventry (NYSE:CVH) still seem to be trading below their inherent earning power as investors try to digest the impact of upcoming regulation on their medical costs and membership expansion potential.
A Surprisingly Strong First Quarter
WellPoint's first quarter once again highlights the difference between absolute and relative performance. On an absolute basis, it would seem that revenue contraction of over 1% would be something of a disappointment. In this case, though, analysts were expecting a bigger decline and WLP's top line and profit performance were surprisingly strong.
While WellPoint did see a small increase in administrative fees, premium revenue dropped more than 1% (and that's more than 85% of the revenue base). Membership did grow over 1%, though, with strong performance in national and senior categories. (For more, see 5 Health Insurance Considerations.)
Looking at the profit picture, WellPoint saw operating profits rise almost 5% despite a small uptick in the medical loss ratio (up to 82.1). Especially noteworthy was the better than 5% year-on-year decline in general and administrative expenses, and it is impressive to consider that the company is still finding that amount of cost savings in the system.
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