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updated: 11/7/2012 8:25 AM

WellPoint 3Q profit up, stock down after election

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Associated Press

INDIANAPOLIS -- WellPoint Inc.'s third-quarter earnings trumped Wall Street expectations, but the health insurer's stock tumbled in premarket trading Wednesday and after President Barack Obama won re-election, a victory that helps cement the future of his health care overhaul.

The overhaul aims to cover millions of uninsured people starting mostly in 2014, which means more business for insurers. But it also imposes fees and restrictions on the sector that are expected to squeeze profits for companies like WellPoint, which focuses large portions of its business on covering individuals and employees of small businesses.

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WellPoint's shares tumbled $2.20, or 3.6 percent, to $59 before markets opened Wednesday. But Citi analyst Carl McDonald said the company's results would be viewed "quite favorably" without the election's impact.

"There's been an undercurrent of concern among many regarding the potential for bad news out of WellPoint's third quarter earnings, but the trepidation wasn't warranted," McDonald wrote in a research report, noting that the insurer easily beat expectations.

WellPoint earned $691.2 million, or $2.15 per share, in the three months that ended Sept. 30. That's up 1 percent from $683.2 million, or $1.90 per share, a year ago.

Excluding investment gains, adjusted earnings were $2.09 per share, which trumped Wall Street expectations.

Analysts expected $1.83 per share, according to FactSet.

The insurer's revenue, also excluding investments, was $15.13 billion, which fell short of analyst expectations for $15.3 billion in revenue.

WellPoint said its enrollment slid more than 2 percent to about 33.5 million people compared to last year. Losses in individual and employer-sponsored health coverage more than offset gains the insurer made in its Medicaid and Medicare businesses.

The company operates Blue Cross Blue Shield plans in 14 states, including California, New York and Ohio.

WellPoint had not recorded a quarterly increase in earnings compared to the previous year since the first quarter of 2011, and the insurer's performance had frustrated several large shareholders. Chairwoman and CEO Angela Braly abruptly resigned with about a month left in the third quarter, and the company named John Cannon, its executive vice president and general counsel, to serve as interim CEO.

Wednesday morning's stock decline blunted the 5 percent growth shares had seen since Braly left.

While the overhaul is expected to give insurers millions of new customers, the industry will pay a hefty price for that additional business.

Insurers will start paying annual fees in 2014 that total $8 billion that year and rise after that. The law also restricts how much insurers can vary their pricing based on things like age and health, key tools they use to ensure that they have enough money to pay medical claims.

The overhaul also will require them to cover everyone who applies starting in 2014, even those already sick with expensive conditions such as diabetes. Additionally, the law stipulates that insurers spend certain percentages of the premiums they collect on care or pay rebates to customers.

Analysts have said that insurers like WellPoint will see their profit margins squeezed the most by these limitations and premium spending rules.

But Morningstar analyst Matt Coffina said Wednesday he thinks WellPoint is positioned well for the overhaul. He said the company has experience selling individual policies and a well-recognized brand that should help when coverage expands.

In July, WellPoint lowered its 2012 forecast to adjusted earnings ranging from $7.30 to $7.40 per share. It reaffirmed that forecast on Wednesday.

Analysts expect, on average, earnings of $7.38 per share.

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