Shares flat despite 20% earnings surge; acquisition unveiled

How long can WellPoint and other health insurers match the stellar profit growth of recent years? That's what some on Wall Street were asking Wednesday when the Indianapolis-based health insurer reported yet another quarter of strong growth in profits and membership.

WellPoint, the nation's largest health-benefits company, on Wednesday reported net income of $731.8 million, or $1.09 a share, for the first quarter ending March 31. That's up 20 percent from net income of $611.7 million, or 98 cents a share, from a year ago. The recently completed quarter was the first full reporting period since the completion of WellPoint's $6.5 billion acquisition of New York-based WellChoice.

"We had a very good quarter, and I think I would attribute that to the efforts of our people," said WellPoint Chairman, President and Chief Executive Larry Glasscock in an interview. "I think we had a terrific quarter, I would say an outstanding quarter."
The result beat the $1.07 a share that analysts were forecasting. WellPoint reported revenue of $13.8 billion for the first quarter, up 26 percent from $10.9 billion a year ago.

As of March 31, the company's membership totaled 34.2 million, an increase of more than 5.6 million over the past year. Of that growth, about 4.8 million members came from the WellChoice acquisition, which was completed in December.
WellPoint's growth has soared in recent years through major acquisitions including WellChoice and the 2004 mega-merger of Anthem of Indianapolis and WellPoint Health Networks of California.

In fact, WellPoint announced another, much smaller purchase Wednesday.
WellPoint said it has entered into an agreement to acquire the Medicaid plan from QualChoice Health Plan of Ohio. QualChoice serves about 68,000 Medicaid recipients. Terms of the deal, which is expected to close in the third quarter, were not disclosed.
Wall Street, however, seems to be a bit nervous about how big insurers can keep squeezing more profits from their operations and increasing membership. Stocks for insurers including WellPoint and rival UnitedHealth Group have fallen in recent weeks.
WellPoint shares fell 30 cents to close at $70.44 Wednesday.
Beth Senko, an analyst with Williams Capital Group in New York, said the worries mainly are about whether the companies will be able to sustain the results that have driven their stocks up in recent years.

"WellPoint is still my favorite company in the group," added Senko, who does not own any WellPoint shares. "I thought the quarter was good."

During the conference call with analysts, Glasscock was asked about WellPoint's reaction to recent legislation in Massachusetts aimed at providing health coverage to all residents. He said the program has some good provisions, but he added, "At the same time we think there are some provisions in there that are potentially troubling."

For instance, he said some of the measure's complexity and regulatory issues make the business impact unclear for insurers such as WellPoint. "It's still not clear to us that the financial and revenue arrangements are going to be sufficient."

Analysts say the Massachusetts legislation may be used as a blueprint for reducing the ranks of the uninsured. Indeed, at least one analyst said insurers may be feeling increased pressure to help make health care accessible to those without coverage.
Thomas Carroll, analyst with Stifel Nicolaus and Co. in Baltimore, also noted that Glasscock spent a good bit of time on the conference call outlining WellPoint's work with individual insurance products designed to attract the kinds of people who often are without insurance.

"I think they're trying to portray this as a company that has a heightened sense of social responsibility . . . especially compared with other companies out there," said Carroll, who does not own WellPoint shares.

Glasscock said that in the first quarter WellPoint added almost 100,000 members who did not previously have insurance. He pointed to products such as Tonik -- aimed at the potentially lucrative market of young adults -- as part of a "next generation" of insurance products aimed at providing segments of the population with affordable coverage. WellPoint has expanded Tonik, which started in California, to other states, including Colorado and Nevada. Glasscock said it is slated to be offered in Indiana next year.

In addition, WellPoint said it added 1.3 million members for Medicare Part D prescription drug coverage.

For the full year 2006, WellPoint said it expects to earn $4.63 a share, with membership to grow to about 34.8 million. Analysts had been forecasting $4.57 a share for 2006.

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By Daniel Lee
daniel.lee@indystar.com
Call Star reporter Daniel Lee at (317) 444-6311

Copyright 2006 IndyStar.com.