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Insurer WellPoint's 2Q profit soars 24 percent

Wednesday - 7/24/2013, 7:09pm  ET

FILE- This July 17, 2012, file photo, shows the corporate headquarters of WellPoint in Indianapolis. WellPoint reports quarterly earnings on Wednesday July 24, 2013. (AP Photo/Michael Conroy, File)

TOM MURPHY
AP Business Writer

INDIANAPOLIS (AP) -- Shares of WellPoint Inc. hit an all-time high Wednesday, after the nation's second-largest health insurer trounced second-quarter earnings expectations and detailed how it expects to benefit from the health care overhaul and other growth opportunities over the next few years.

The Indianapolis company's stock had already climbed 44 percent so far this year as of Tuesday, as investors have grown more comfortable with both the insurer's current performance and how the overhaul will affect it.

The federal law aims to expand insurance coverage to millions of people over the next few years. Much of that growth starts next year, when the state and federally funded Medicaid program for the poor and disabled people expands and customers start using income-based subsidies to buy individual coverage through insurance exchanges.

That represents a wave of new business for WellPoint and other health insurers, but investors have been wary of how fees and coverage restrictions imposed by the massive law will affect the sector.

CEO Joseph Swedish told analysts Wednesday morning that the exchanges and the expansion of Medicaid, among other factors, present growth opportunities that are "more compelling than we have seen in several years."

He said the company's annual operating revenue, which excludes investment gains or losses, could reach around $90 billion by 2016 compared to the $71 billion WellPoint expects this year. He expects that growth to help the company's profitability, although WellPoint officials decline to offer specifics on that.

Investors are starting to gain a clearer understanding of how the law will affect health insurers, and they also are heartened by the fact that it won't trigger a dramatic business shift next year, said Ana Gupte, an analyst who covers the sector for the investment research firm Dowling & Partners. She noted that the changes will instead develop over a couple years as people and businesses adjust to the law and shopping for coverage on the exchanges.

In WellPoint's case, investors also like how the company has done so far this year, Gupte said.

"There's more comfort with their execution at this point this year than last year," the analyst said.

The Indianapolis company topped expectations in the first quarter and then said Wednesday that it earned $800.1 million, or $2.64 per share, in the three months that ended June 30. That's up about 24 percent from $643.6 million, or $1.94 per share, a year ago.

Operating revenue soared 16 percent to $17.6 billion, and adjusted earnings were $2.60 per share.

Analysts expected adjusted earnings of $2.08 per share on $17.81 billion in revenue, according to FactSet.

WellPoint said a lower-than-expected increase in medical costs, spurred by provider rate negotiations and slower health care use, helped its performance.

The insurer's enrollment rose more than 6 percent to about 35.7 million people compared to the 2012 quarter, thanks to last year's $4.46 billion acquisition of Medicaid coverage provider Amerigroup Corp. That helped increase revenue.

WellPoint now expects full-year earnings of at least $8 per share, not counting one-time items like investment gains or losses. That's up from its previous forecast for $7.80 per share.

Analysts expect, on average, earnings of $8.03 per share.

In last year's quarter, the insurer reported an 8 percent drop in earnings and cut its forecast for 2012. A month later, former CEO Angela Braly resigned. Her replacement, Swedish, started at the end of this year's first quarter.

WellPoint ranks second in size to UnitedHealth Group Inc., which also reported enrollment gains and a better-than-expected second-quarter performance last week.

WellPoint shares rose as high as $90 in Wednesday morning trading for the first time since January 2008. The shares then retreated, falling 7 cents to close at $87.44 Wednesday.


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