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WellPoint Shares Jump on Boosted Earnings Outlook

Health care: Large California insurer raises its 2002 forecast on stronger-than-expected growth in enrollment.

June 12, 2002|From Times Wire Services

Shares of WellPoint Health Networks Inc. soared Tuesday and lifted other health insurance stocks after the company boosted its profit outlook for the year because of stronger-than-expected growth in health plan membership.

WellPoint, one of California's biggest health insurers, also said it's benefiting from declining administrative costs.

Shares of WellPoint were up $5.80, or 7.4%, to $83.75, making it one of the leading percentage gainers on the New York Stock Exchange as it hit an all-time high. Shares of Cobalt Corp., the Blue Cross/Blue Shield licensee for Wisconsin, rose $2.24, or more than 11%, to $22.34 on the NYSE.

Analysts said there are signs that health insurance providers, seeking to protect profits, are not willing to cut premiums to attract new customers.

"I think we've got a sustainable period here of very solid earnings growth, and that will continue," said UBS Warburg analyst William McKeever. "I think the industry has changed to the point where companies are not going to be fighting for market share."

McKeever raised his price target on shares of WellPoint, the largest Blue Cross/Blue Shield insurance provider, to $96 from $88 and reiterated a "strong buy" on the stock.

Prudential Securities analyst David Shove increased his price target on WellPoint to $90 from $72 and raised earnings estimates for the company, but he maintained a "hold" rating on the stock, citing potential litigation.

WellPoint said late Monday that it was raising its earnings guidance for 2002 to $4.30 a share from $4, with earnings in each of the last three quarters about 10 cents a share higher than expected.

Membership in its health plans probably will increase in "the high single-digit range" for the year, compared with its earlier forecast of 5% to 7% growth, the Thousand Oaks-based company said. In California, membership growth is expected to hit 10.5%.

WellPoint has added customers in California and Georgia by offering health plans that give members a choice of doctors and a range of co-payments for medical care and prescription drugs. The company also is benefiting from its purchase of rival Blue Cross and Blue Shield insurers to expand in the Midwest and Southeast over the last year.

Investors also bid up share prices for the other publicly traded Blue Cross and Blue Shield franchisees, with many hitting 52-week highs during the day's trading.

Anthem Inc., a Blue Cross/Blue Shield franchisee with more than 8 million members, rose 55 cents to $73.12 on the NYSE.

Trigon Healthcare Inc., the remaining publicly traded Blue Cross/Blue Shield franchisee, rose 85 cents to $107 on the NYSE. The company announced a deal to sell itself to Anthem on April 29.

The S&P Managed Health Care index was up 2.85% to 228.55, bolstered by having all five of its components up at least 0.77%. Aetna Inc., Humana Inc., UnitedHealth Group Inc., Cigna Corp. and WellPoint are the index components. The index is up a whopping 32.7% this year, compared with a 9.61% decline in the S&P 500 index.

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