WellPoint (WLP), the largest health benefits company in the U.S., grew even larger last week with the completion of its purchase of WellChoice. The closing of the $6.5-billion deal, which was announced last September, makes shares of the managed-care giant even more attractive for the coming year, says Standard Poor's analyst Phillip Seligman.
Seligman, who already liked the long-term earnings prospects for the company, reiterated his "strong buy" recommendation for the stock following the announcement on December 28. The stock is highlighted in the January 4 issue of SP's Outlook newsletter.
WellPoint, which itself was formed by a merger between Anthem and WellPoint Health Networks in late 2004, serves 34 million medical members, including the 5 million it has gained from WellChoice. It provides health insurance under the Blue Cross/Blue Shield brand in several states. That well-known name is an advantage for attracting new members, Seligman says, considering its "long-standing reputation for high quality service."
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WellChoice was the last remaining publicly traded Blue licensee, besides WellPoint. Its strong presence in the Northeast should be a boon for WellPoint's national accounts business, Seligman says.
WellPoint competes against such companies as UnitedHealth Group and Aetna. SP gives all three stocks its highest five-star rating.
Seligman says the purchase likely won't affect WellPoint's earnings this year. However, he sees the deal adding 5 cents a share to the company's 2007 profits, which he now estimates at $5.35 per share.
The stock made strong gains in 2005, climbing 39% for the year. At $79, the stock trades at 17 times the 2006 consensus earnings estimate of $4.58 per share. Analysts expect earnings to grow 15% annually over the next five years.
--Lisa Dixon