June 30, 2008 - Wellpoint Inc. (WLP-NYSE) through its subsidiaries, operates as a commercial health benefits company in the United States. It offers various network-based managed care plans to the large and small employer, individual, Medicaid, and senior markets. The company's managed care plans include preferred provider organizations, health maintenance organizations, point-of-service plans, traditional indemnity plans, and other hybrid plans, including consumer-driven health plans, hospital only, and limited benefit products.

The company markets its products through a network of independent agents and brokers, as well as through in-house sales force. WellPoint was founded in 1944. It was formerly known as Anthem, Inc. and changed its name to WellPoint, Inc. in 2004.

Wellpoint stock used to trade at $89.90 a share. That was last year. Now it's changing hands a little below $50 a share. Are things so bad that the price reflects the company or is this a stock that's victim of a market that is selling everything, no matter what the prospects for a company? Here's what we know.

Earnings will be lower this year than last, the first time there's been a decline since the company went public in 2001. But not by much, going from $5.57 to $5.48, if analysts are right in their prediction. Next year they see $6.22 a share. In the first quarter, new customers increased enrollment by 1.4% from a year ago. But there was a degeneration of 200 basis points in the benefit expense ratio, to 85.1% that caused earnings to fall to $1.07 for the quarter, below the $1.26 of the same quarter last year. The Senior business, Wellpoint's Medicare plans, had the largest declines because of higher claims and benefit design changes for certain products. Expect more pressure on profits as expenses from the Senior program go up.

To counter some of these, the company is seeing increased membership in National Accounts, commercial and senior businesses as well as new Medicaid contracts. It's also raising prices and has better control on expenses which should show up in an improved medical loss ratio. Rising costs are a concern, however, especially in California's Medicaid program, a state where the company has a large membership.

Wellpoint has a lot of good going for it: good geographic coverage, technology advancements, new products and services as well as new acquisitions. And it has strong cash flow. One analyst believes as much as $3.1 billion this year. That money can be used for buying other companies, reducing debt, buying back stock, paying a dividend, or simply left in the bank to strengthen the balance sheet.

Other numbers: Market cap is $25.19 billion on 526.177 million shares. A very low P/E of 8.9. Price to Book is 1.17 (book value is $40.73). Operating margin is 8.69% and net profit margin is 5.11% (trailing twelve months). Return on equity is 13.5% (ttm). Total debt to equity is .432. Institutions own 85.6% of the stock.

Wellpoint faltered. Earnings were hurt by increased costs in a large part of its business. Management is addressing that with better technology, higher prices and new products. Cash flow is strong. Earnings should improve again (over the last 5 years, they increased by 22% a year, on average...analysts predict improvement will be at 14% a year, on average, going forward). This stock may be down but it's certainly not out. Further investigation by investors seems well warranted.

- Company Web site: www.wellpoint.com

- Ted Allrich