We are upgrading our recommendation on WellPoint (WLP) to Outperform based on its ability to generate higher premiums and control costs, which enhances operational efficiencies. The company's first quarter
earnings came in above the Zacks Consensus Estimate, spurred by significant reduction in SG&A expenses and a jump in medical enrollment.
Additionally, the effort to bring down the rate of rising health care costs contributed to the increase. The sale of the NextRx subsidiaries also strengthened the balance sheet and fueled stock repurchase and the CareMore acquisition.
With its leading market share positions, diversified product portfolio and consistency, WellPoint has strong long-term growth potential. Our six-month target price of $88.00 equates to 12.4x our earnings estimate for 2011.
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