WellPoint Inc. on Wednesday reported net third quarter income of $691.2 million – $2.15 per share – an increase compared with same period last year, when it reported net income of $683.2 million, or $1.90 per share. The third quarter increase marks the first time since the first quarter of 2011 the company has produced a quarterly earnings increase.
WellPoint's shares were trading down more than $3.18 per share, or nearly 5 percent, in early trading to $58.02 on the news, though other insurance stocks were also taking a significant haircut. Humana, the second largest provider of Medicare Advantage insurance plans in the country was down more than 8 percent in morning trading, well in excess of the broader markets' declines that were around 2 percent.
Despite the market reaction, most analysts were positive about WellPoint's earnings, the first quarterly results posted since CEO Angela Braly stepped down in late August among pressure from institutional investors. In posting earnings 1.2 percent higher than last year's third quarter, the company beat Thomson Reuters' analyst estimates of $1.84 per share.
"The third quarter reflected a combination of improved core operating performance, administrative expense management, and favorability in the capital management of the company. Our earnings were supported by strong adjusted operating cash flow in the quarter and sequential increases in medical claims reserves and days in claims payable," said Wayne DeVeydt, executive vice president and chief financial officer, in a press release announcing the financial results.
While the quarter was an improvement on past disappointing results under Braly's leadership, it also saw a continued decline in medical enrollment to 33.5 million members, down 862,000 in the past 12 months.
But the company also benefitted from some of the moves made under Braly's leadership.
"It looks very much like the CareMore deal, as well as 1-800 Contacts, continue to support earnings," Thomas A. Carroll, a Stifel Nicolaus & Co. analyst in Baltimore, said in a Reuters report. "And that comes against the backdrop of medical cost trends that remain relatively stable."
Jason Gupta, of New York-based investment firm Leerink Swann, was lukewarm in his assessment of WellPoint's third quarter performance, observing in a note to investors that "(WellPoint) reported 3Q earnings ahead of expectations but the quarter was not nearly as strong as those reported by most of its peers."
Meanwhile, Bank of America analysts viewed the combination of the election along with the third quarter negatively and downgraded its investment recommendation from a "buy" rating to "underperform."
"While the impacts of (health reform) provisions have been scrutinized for the past few years, the range of potential outcomes is quite wide with a downside scenario more likely than an upside scenario, in our opinion," the analysts wrote. "(WellPoint) has the most exposure to 2014 uncertainty and appears unlikely to show significant upside in 2013."