Wednesday, November 3, 2010

WellPoint Buyback Machine

WellPoint (WLP) continues to repurchase it's own shares like they won't be this cheap much longer. For the first 9 months of 2010, WLP has bought $3.3B worth of shares or 13% of the outstanding shares as of the start of this year.  Wouldn't it be nice to own a stock with that much support from the company? As it turns out, an investor can purchase this stock at prices 20% lower then the year started.

Over the last 12 months, WLP has bought back roughly 18% of the company based on the current value of $22B. Management has already announced at least $700M in expected purchases in Q4. Since they don't pay a dividend which turns some investors off the Net Payout Yield is just the 18%. One of the highest yields in the market.

WLP easily beat estimates of $1.57 probably partially because analysts are slow to raise EPS estimates as share counts drop. WLP is an extremely cheap stock only trading at 8.5x next years estimates. On top of that, those estimates will likely rise closer to $7 further reducing the PE ratio substantially below the market average.

Health insurers face uncertain times due to the new rules on Medical Loss Ratio (MLR). It strikes me that insurers won't spend as much time attempting to bring down costs if they just turn around and give members checks. Likely unintended consequences. Regardless, WLP remains a Buyback machine!


Via Reuters:

  • Analysts have said health insurer stocks could rise 5 percent to 15 percent over the next couple of months, even after gaining on expectations of a Republican win in recent weeks.
  • "With a Republican Congress, I think that (with) the political environment as well as the regulatory risks, we're in a modestly improved position from earlier in the year," Leerink Swann analyst Jason Gurda said.
  • We are starting to see some stability in the unemployment levels," WellPoint Chief Financial Officer Wayne DeVeydt said in an interview. "I wouldn't say we're seeing recovery, though, at this point."
  • DeVeydt said the MLR regulations, which will require that the insurers provide rebates should they not reach minimum spending levels, will be a significant challenge to profits next year, when the rules are set to kick in.
  • "The more effective we are in driving down costs, the good news is our members will get a check back for that," DeVeydt said. "But ultimately, we no longer get to participate in the value we bring for driving down costs."

Via PR:

  • Net income was $1.84 per share, including net investment gains of $0.10 per share
  • Medical enrollment totaled 33.5 million members as ofSeptember 30, 2010
  • Selling, general and administrative expenses declined by$170 million from the prior year quarter and the SG&A expense ratio declined by 30 basis points to 14.6 percent
  • Full year 2010 net income is now expected to be at least$6.60 per share, including net investment gains of $0.18 per share, partially offset by an impairment charge of $0.03 per share
"Based on our overall performance, we have increased our year-end 2010 enrollment expectation by 200,000 members, and also raised full-year 2010 guidance for earnings per share to at least $6.60, or at least $6.45 on an adjusted basis," said Wayne S. DeVeydt, executive vice president and chief financial officer. "We also expect to complete more than $4 billion of share repurchases during 2010, representing a significant return of capital to our shareholders following the sale of NextRx at the end of last year."

Share Repurchase Program: During the first nine months of 2010, the Company repurchased 58.9 million shares of its common stock, or 13.1 percent of the shares outstanding at December 31, 2009, for approximately $3.3 billion, following the sale of NextRx.  As of September 30, 2010, the Company's remaining Board-approved share repurchase authorization totaled $538.6 million.  The Company expects to utilize this authorization in the fourth quarter of 2010, subject to market and industry conditions.  


Disclosure: Long WLP

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