WellPoint: Healthy Competitor

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."

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

Save up to 74%

Sign up for Kiplinger’s Free E-Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Sign up

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