We have retained our Neutral recommendation on WellPoint Inc. (WLP) as health care reforms and high leverage of the company will likely weigh on the positives. This healthcare provider currently carries a Zacks Rank #3 (Hold).
Maintaining its upward debt trends since 2009, WellPoint experienced a huge debt burden in 2012. Further, enrollments declined owing to high levels of unemployment and are expected to decline further in 2013 due to the carryover effect of pricing decisions in the Administrative Services Only (:ASO) market.
Moreover, health care reforms such as the ban on annual and lifetime coverage caps, annual fees on health insurance companies, excise tax on high premium insurance policies and restriction on charging higher premiums from people with pre-existing medical conditions will likely increase expenses and pressurize margins.
Nevertheless, the company’s key strength lies in its license to market products under BCBSA, the most recognized brand in the industry, and is thus expected to cater to more than 1.0 million baby boomers every year through 2030 across the states where WellPoint has a presence.
WellPoint has been witnessing substantial earnings growth over the past few quarters, spurred by the improvements in operating cost structure and efficient capital management. The company’s strategic partnerships and acquisitions to diversify its product portfolio are also expected to boost earnings and surge revenue growth in the upcoming period.
WellPoint continues to increase shareholder value. The company spent $2.9 billion on share repurchases and dividends in 2012, while it estimates to deploy about $2 billion for the same in 2013. The dividend yield of the company is currently 1.77%, higher than 1.05% of another industry leader, Aetna Inc. (AET).
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