On May 22, 2013, shares of WellPoint Inc. reached a 52-week high of $79.58. The momentum was driven by the strong first-quarter earnings of the company, which prompted a 5.8% gain in the stock price to $73.33 on Apr 24 2013, when the results were announced, from $69.33 on the previous day.
The share price of this Zacks Rank #2 (Buy) stock has been strong ever since, with a 12.5% surge till date. 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%.
Operating revenues of WellPoint for the reported quarter were $17.5 billion, up 15.8% from the year-ago quarter level. The increase in revenues resulted from the acquisition of Amerigroup, partly offset by the decline in fully insured Local Group and Senior membership.
Moreover, WellPoint’s strong capital and cash position have fueled cash dividends and stock repurchases. As a result of the sound financial position, on Feb 21, 2013, the company announced a 30% hike in its quarterly dividend to 37.5 cents per share, beginning first quarter 2013, from 28.75 cents paid earlier. Further, WellPoint repurchased 5.5 million shares for $340.2 million in the first quarter of 2013.
With respect to earnings trend, WellPoint delivered positive earnings surprise in 3 of the past 4 quarters, with an average of 11.4%.
However, the valuation of WellPoint looks stretched. The shares are trading at a discount of 13.3% and 45.2%, respectively, to its peers both on a forward price-to-earnings basis and price-to-book basis, while the return on equity of 10.7% is 14.4% lower than the peer group average of 12.5%. Nevertheless, the year-to-date return from the stock was 28%, much above the S&P’s return of 15.7%.
Other health maintenance organizations worth considering are Molina Healthcare Inc. (MOH - Analyst Report) – Zacks Rank #1 (Strong Buy), Aetna Inc. (AET - Analyst Report) – Zacks Rank #2 (Buy) and Health Net Inc. – Zacks Rank #2 (Buy).