On Jul 15, 2013, the shares of WellPoint Inc. reached a new 52-week high of $85.88. The momentum was driven by the strong fundamentals of the company and a history of outperforming earnings estimates.
WellPoint reported positive earnings surprise in 3 of the last 4 quarters, with an average beat of 11.39%. The company has been witnessing substantial earnings growth over the past few quarters, spurred by the improvements in operating cost structure, strategic acquisitions and efficient capital management.
Moreover, WellPoint has a strong capital and cash position, which fueled cash dividends and stock repurchases. While the company increased the quarterly dividend by 30% in the first quarter of 2013, it expects to deploy about $2 billion for share buybacks in 2013.
Given its leading market position, diversified product portfolio, efficient capital management and strategic acquisitions, we believe that WellPoint has modest long-term growth potential.
WellPoint is expected to release its second quarter 2013 financial results before the opening bell on Jul 24, 2013. The Zacks Consensus Estimate for the company’s second quarter earnings per share stands at $2.08, up 1.85% over the year-ago quarter.
The valuation of WellPoint looks reasonable. The shares are trading at a discount of 13.1% and 42.4% to its peers on a forward price-to-earnings basis and price-to-book basis, respectively, while the return on equity is 14.4% lower than the peer group average. Nevertheless, the year-to-date return from the stock was 26.7%, above the S&P’s return of 24.0%.
WellPoint currently carries a Zacks Rank #3 (Hold). Other health maintenance organizations worth considering are Molina Healthcare Inc. (MOH - Analyst Report) – Zacks Rank #1 (Strong Buy), Humana Inc. (HUM - Analyst Report) – Zacks Rank #1 (Strong Buy) and Aetna Inc. (AET - Analyst Report) – Zacks Rank #2 (Buy).