(Bloomberg) — WellPoint Inc., the second-biggest U.S. health insurer, raised its profit forecast for 2013 after lower-than-projected medical costs helped its earnings beat analyst estimates for the second quarter.

Net-income soared 24% to $800.1 million, or $2.64 a share, the Indianapolis-based carrier says today in a statement. Earnings excluding one-time acquisition costs and investment gains were $2.60 a share. Analysts had predicted $2.08, the average of 19 estimates compiled by Bloomberg.

Chief Executive Officer Joseph Swedish has now beaten earnings estimates and raised the profit forecast twice since joining the company in March. The results have been fueled by last year’s $4.9 billion acquisition of Medicaid insurer Amerigroup Corp. and lower-than-anticipated medical costs that have helped the entire industry.

The profit projection “remains conservatively stated,” says Thomas Carroll, a Stifel Nicolaus & Co. analyst based in Baltimore, in a note to clients. “In our view, Amerigroup and the persistence of a low-utilization environment continue to support strong earnings.”

The company raised the 2013 earnings forecast to at least $8 a share from its previous projection of at least $7.75.

WellPoint shares rose less than 1% to $87.51 in New York trading yesterday and have gained 44% for the year.

Better quarter

The results marked a reversal from last year’s quarter, when WellPoint lowered its profit forecast and missed analysts’ estimates for the second time in three quarters. Combined with prior missteps, the actions spurred a shareholder revolt that led to the August resignation of CEO Angela Braly.

“A new CEO in a turnaround usually spends their first year explaining that investors need to be patient,” says Erik Gordon, a business professor at the University of Michigan in Ann Arbor. “Swedish will enjoy the credibility he gets from a second quarter with improved results that surprised everyone.”

Revenue rose 16% to $17.6 billion, boosted by the Amerigroup acquisition, the company says. The deal made WellPoint the biggest provider of government-backed Medicaid coverage for low-income Americans. The purchase also helped swell enrollment in the second quarter by 6.3% to 35.7 million people.

Adding members

WellPoint expects to add members next year among employer-backed plans and consumers who buy their own policies, Swedish says in today’s statement. That should further cheer investors worried about how the company will fare when key provisions the Affordable Care Act kick in, says Brian Wright, a Monness, Crespi, Hardt & Co. analyst in New York, in a note to clients.

UnitedHealth Group Inc., the biggest insurer, also beat estimates last week thanks to lower medical claims, even as hospital chains such as Community Health Systems Inc. reported patient admissions were down in the second quarter. The shift has helped send managed-care stocks soaring this year, said Scott Fidel, a Deutsch Bank analyst in New York.

“The soft health-care utilization trends that supported earnings in 1Q13 have continued into 2Q13,” Fidel wrote in a July 16 note to clients. “Medical cost trends have been tracking at or near historical lows through April.”

WellPoint reported earnings of $643.6 million, or $1.94, a year earlier.

UnitedHealth is based in Minnetonka, Minnesota, and Community Health in Franklin, Tennessee.

Register or login for access to this item and much more

All Employee Benefit Adviser content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access