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WellPoint 4Q profit dives, but stock rises

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INDIANAPOLIS -- Shares of WellPoint Inc. (NYSE: WLP) climbed Wednesday after it became the latest insurer to report a steep profit drop but dumped no fresh bad news on investors wary of the sector.

The nation's largest insurer by enrollment said it earned $331.4 million, or 65 cents per share, down 61 percent from $859.1 million, or $1.51 per share, a year ago. Revenue fell 3 percent to $15.07 billion from $15.57 billion.

Minnetonka, Minn.-based UnitedHealth Group Inc. (NYSE: UNH) reported a 40 percent drop in profit last week for its fourth quarter, and that company's stock has risen every day since.

The sector has been battered by investment losses and rising unemployment due to the recession. Insurers also were hampered last year by premiums they priced too low for their medical costs.

Investment losses and enrollment declines continued to hurt WellPoint in the fourth quarter. But the insurer also said it expects low single-digit earnings growth this year and positive cash flow.

"That's a better picture than many sectors right now," Stifel Nicolaus analyst Tom Carroll said in an e-mail.

Health care sector stocks, which include insurers like WellPoint, have started to outperform the S&P 500 index over the past few months, said Steven Voss, chief investment officer with Diamond Capital Management. His firm owns more than 10,000 WellPoint shares.

Voss said he thinks investors believe those companies have bottomed out, and performances will start to improve.

"There seems to be some momentum established or maybe building in the health care sector in general," he said.

WellPoint's fourth quarter included after-tax investment losses of $350 million, or 69 cents per share. Excluding that, WellPoint earned about $1.34 per share.

Analysts polled by Thomson Reuters expected, on average, a profit of $1.36 per share and $15.56 billion in revenue.

The Indianapolis-based company, which operates Blue Cross and Blue Shield plans in 14 states, said its membership fell by 288,000 to 35 million from the third quarter to the fourth, as employers cut jobs.

Chief Executive Angela Braly said the company expects unemployment to continue to rise in 2009 and could peak above 10 percent in some of WellPoint's states. She noted, for instance, that California is already trending above the national unemployment average.

"The challenging climate in the United States is causing many customers to reduce workforce size and to seek more cost effective solutions and services from their health plans," she said.

For 2008, WellPoint's enrollment rose less than 1 percent from about 34.8 million a year ago. Membership in state-sponsored Medicaid plans fell by 206,000. But the insurer added 504,000 members to its national business.

Braly also said the company added 300,000 new members to its national accounts as of Jan. 1.

"We've had a really strong selling season in terms of national accounts," she said. "We feel really good about that."

Total premiums grew slightly to $14.3 billion in the fourth quarter. But WellPoint's selling, general and administrative expense rose 10 percent, as the company took a $24 million charge for job cuts it announced earlier this month.

The insurer said Jan. 16 it planned to cut about 1,500 jobs, or 3.5 percent of its staff, which totals more than 42,000 employees.

WellPoint spent 83.4 percent of premium revenue on medical care in the quarter, up from 82.9 percent last year, due in part to higher medical costs.

For 2008, the company earned $2.5 billion, or $4.76 per share. That represented a profit drop of more than 25 percent from 2007, when it earned $3.35 billion, or $5.56 per share.

Total revenue rose slightly to $61.25 billion from $61.17 billion.

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