In the battle of large-cap insurance carriers, WellPoint
The company's earnings release comes just days after competitor UnitedHealth Group
WellPoint's revenue and net income numbers were fairly impressive. On a per-share basis, net income increased by 23% from the company's 2005 Q4. Excluding the impact of a large acquisition at the end of 2005, WellPoint's 2006 Q4 operating revenue increased by 12% year over year. Management attributed the improvement to disciplined pricing, enrollment in WellPoint's Medicare Part D products, and a New York state prescription drug contract the company won in 2006.
The earnings release included several more positive facts. Enrollment increased by 467,000 members, or 1.4%, from the prior year. In addition, the company spent $550 million during its fourth quarter to repurchase 7.3 million of its own shares. For all of fiscal 2006, the company spent $4.6 billion to repurchase 60.7 million shares.
The one main drawback to the company's growth has been an increased benefit expense ratio. On a comparable basis, the company's benefit expense ratio in the fourth quarter increased 50 basis points year over year, from 80.6% to 81.1%. The increase resulted from a slight shift in business mix, which included growth in programs that have higher benefit expense ratios than the company average. These included its Federal Employee Program business and other state-sponsored programs.
All in all, the results for the company's Q4 are favorable. The company's large, consistent share repurchases are a positive trend for shareholders. WellPoint continues to demonstrate that it can churn out double-digit revenue growth and maintain its pricing power for premiums. While the increased benefit expense ratio might concern some, it's not surprising, given the growth in lower-margin business segments. I still believe that WellPoint is right on track to meet its forecasted 2007 earnings. On a per-share basis, they're expected to show a 14.7% improvement over 2006.