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Analyst Blog

On Mar 17, 2014, shares of WellPoint Inc. (WLP - Analyst Report) reached a new 52-week high of $95.45, after the company reported financial results and hiked its quarterly dividend. In fact, the share price escalated almost 12% since the company reported its fourth quarter results on Jan 29.  

Its fourth-quarter operating earnings of 87 cents per share, although down year–over–year, successfully surpassed the Zacks Consensus Estimate. With respect to earnings trend, this managed care organization witnessed positive earnings surprises in the last four quarters, with an average beat of 16.24%.

Additionally, to boost investor sentiment, the company announced a 17% quarterly dividend hike, the day before the earnings announcement. WellPoint has been proactive when it comes to enhancing shareholder value through dividend payouts and share repurchases. The company reported of having repurchased around 20.7 million shares for $1.6 billion in 2013. With a strong operating cash flow to support, we believe that the repurchase of the remaining $3.7 billion under its authorization is feasible.

WellPoint is also focused on enhancing its core operations. Toward this end, the company divested its non-core businesses, namely, 1-800 CONTACTS, its online contact lens retail subsidiary and glasses.com. – its eye glasses business.  The deals will not only help the company to focus on its core business but the proceeds from the deals ill also fund WellPoint’s capital deployment initiatives.  

The stock gained 49% in the 1–year period. WellPoint’s 1-year return of 46.4% was higher than the S&P 500’s return of 19.1% and that of the other industry players, with UnitedHealth Group Incorporated (UNH - Analyst Report), Aetna Inc. (AET - Analyst Report) and Cigna Corp. (CI - Analyst Report) recording 40.2%, 43.5% and 24.2% returns, respectively. The Zacks Consensus Estimate for 2014 is pegged at $8.36 per share, higher then the company guided EPS of $8.00 while the same for 2015 stands at $8.98 per share, up 7.5% year over year.

WellPoint currently carries a Zacks Rank #3 (Hold). Aetna is a better-ranked stock in the sector with a Zacks Rank #2 (Buy) and is worth considering.

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