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On Wednesday, WellPoint Inc. (WLP - Analyst Report) announced that it has closed the acquisition of 1-800 CONTACTS Inc., a web and phone-based eyewear retailer, from private equity firm, Fenway Partners. The financial terms of the deal, which was announced earlier this month, were not disclosed. However, according to Bloomberg, the deal’s estimated value is $900 million.

WellPoint expected the acquisition to close in the third quarter of 2012. However, things moved faster than anticipated and the acquisition was closed in just over a fortnight from the initial announcement.

1-800 CONTACTS Inc. will operate as a wholly-owned subsidiary of WellPoint. 1-800 CONTACTS currently boasts of more than 3.3 million customers.

WellPoint expects the transaction and integration costs associated with the acquisition to reduce its earnings per share by 4 cents. Consequently, on June 4, the company lowered its net income guidance for 2012 to $7.80 per share, including net investment gains of 19 cents per share in the first quarter.

Furthermore, the cash balance of WellPoint is expected to decline substantially, as the company will finance the acquisition from its cash in hand. As of March 31, 2012, the company had cash and cash equivalents of $2.3 billion.

1-800 CONTACTS is the leading direct-to-consumer vendor of contact lenses in the United States. Strong brand name and customer-focused approach are the company’s unique selling proposition. The company believes in providing easy access to affordable products via various platforms, such as Internet, phones, mail and fax.

The acquisition marks WellPoint’s foray into products beyond health insurance. It will not only diversify the company’s existing businesses to include eyewear, but is also expected to substantially increase the company’s earnings as the eyewear business has a significantly wider margin compared to the health insurance products offered by WellPoint.

Moreover, there is substantial growth opportunity in the business, given 38 million people wear contact lenses and over 140 million people wear glasses in the U.S., thus creating a huge base of prospective clientele for the company.

WellPoint has emerged as the largest insurer on the basis of enrollment, nudging aside the likes of Aetna Inc. (AET - Analyst Report), CIGNA Corporation (CI - Analyst Report) and UnitedHealth Group Inc. (UNH - Analyst Report). The Zacks Consensus Estimate for WellPoint’s second quarter earnings is currently pegged at $2.08. This represents a year-over-year increase of 13.8%. For 2012, the Zacks Consensus Estimate stands at $7.76 per share, up 10.9% over 2011.

We maintain a long-term Neutral recommendation on WellPoint. The stock also retains a quantitative Zacks #3 Rank (short-term Hold rating).

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