If giant health benefits company WellPoint (NYSE:WLP) can keep this up, shareholders won't be feeling any pain. But then, that's the real question, isn't it? Can large players like WellPoint, UnitedHealth (NYSE:UNH), Aetna (NYSE:AET), and CIGNA (NYSE:CI) all continue to keep a lid on costs, recruit new enrollees, and resist the urge to start price wars?
For WellPoint at least, so far, so good. Total reported revenue increased almost 68% for the fourth quarter, with operating revenue up a similar amount and comparable-basis revenue up almost 6%. (That's adjusting for the impact of the Anthem-WellPoint merger in late November of 2004.) Premium revenue was strong (up more than 5% on a comparable basis) and expense growth was not out of line.
Other metrics of note also looked favorable. Enrollment was up 22% as reported, and up more than 4% on an organic basis. Medical costs also looked pretty good, with the rolling 12-month trend dipping below 8.5%.
There's certainly plenty to like about WellPoint. It's got the most customers of any company in the business, which gives it a great deal of clout with both customers (be they individuals or companies) and health-care providers. In addition, its relationship with Blue Cross Blue Shield gives it an advantage in brand value and an exceptional provider network. Last but not least, I think you can at least float the argument that larger companies are less likely to endanger their own near-monopolies with price competition, so that may not be quite the threat it once was.
If you think that WellPoint can continue to grow its cash flow by low- to mid-teen percentages, you should seriously consider owning this stock. While I consider rival UnitedHealth a fine company (same goes for smaller rival Coventry (NYSE:CVH)), I just see more upside in the numbers with WellPoint. Numbers aren't everything, though, so be sure to do your own careful due diligence before deciding for yourself.
Check up on further Foolishness:
- UnitedHealth Staying Fit
- Is American Healthways Gaining Strength?
- Investors Break Faith With Coventry
UnitedHealth and Coventry are both Motley Fool Hidden Gems recommendations. For more small-cap stocks with sky-high potential, sign up today for a free 30-day trial subscription.
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
