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We have reiterated our Neutral recommendation on WellPoint Inc. (WLP - Analyst Report) based on its strong first-quarter earnings, leading market position, diversified product portfolio, efficient capital management and strategic acquisitions. A hike in dividend as well as an improved guidance for 2013 instills confidence in this Zacks Rank #2 (Buy) stock.

Why Reiterate?

WellPoint’s debt-to-capital ratio is currently higher than the average for the health and managed care sector and even exceeds the targeted range of 25%–35%, as indicated by the bank covenants. Moreover, the company is witnessing lower cash flow and higher benefit expense ratio and total expenses.

However, these negative factors are offset by the various positives. WellPoint’s independent license for marketing products under the Blue Cross Blue Shield Association is one of its key strengths. Moreover, the company regularly undertakes acquisitions to grow inorganically.

WellPoint also effectively manages its capital via share buybacks and dividend payment. The company increased the quarterly dividend by 30% and spent $453.6 million on share repurchases in the first quarter of 2013.

On Apr 24, 2013, WellPoint reported first-quarter 2013 adjusted income of $2.94 per share, beating the Zacks Consensus Estimate of $2.37. Adjusted income also surpassed the year-ago earnings of $2.34 per share by 25.6%.

WellPoint generated positive earnings surprise in 3 out of the last 4 quarters, with an average beat of 11.39%. The company did not witness any estimate revisions in the last 30 days. Thus, the Zacks Consensus Estimate for WellPoint’s 2013 earnings stands at $8.01 per share.

Other Stocks to Consider

Apart from WellPoint, other stocks in the health maintenance organizations worth considering are Molina Healthcare Inc. (MOH - Analyst Report) – Zacks Rank #1 (Strong Buy), Aetna Inc. (AET - Analyst Report) – Zacks Rank #1 (Strong Buy) and Health Net Inc. (HNT - Analyst Report) – Zacks Rank #2 (Buy).

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