WellPoint Inc. Quarterly Valuation – June 2014 $WLP

220px-WellPoint_logo.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Undervalued Companies for the Defensive Investor Near 52 Week Lows.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how WellPoint Inc. (WLP) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): WellPoint, Inc. (WellPoint) is a health benefit company in terms of medical membership in the United States. The Company manages its operations through three segments: Commercial, Consumer, and Other. The Company is an independent licensee of the Blue Cross and Blue Shield Association (BCBSA), an association of independent health benefit plans. The Company offers a spectrum of network-based managed care plans to the large and small employer, individual, Medicaid and senior markets. Its managed care plans include preferred provider organizations (PPOs); health maintenance organizations (HMOs); point-of-service plans (POS) plans; traditional indemnity plans and other hybrid plans, including consumer-driven health plans (CDHPs); and hospital only and limited benefit products. In February 2014, WellPoint sold its online contact lens retail subsidiary 1-800 CONTACTS to private equity firm Thomas H. Lee Partners.

WLP Chart

WLP data by YCharts

Defensive Investor – must pass all 6 of the following tests: Score = 5/6

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Earnings Stability – positive earnings per share for at least 10 straight years - PASS
  3. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  4. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - PASS
  5. Moderate PEmg ratio – PEmg is less than 20 – PASS
  6. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass all 3 of the following tests or be suitable for a defensive investor: Score = 3/3

  1. Earnings Stability – positive earnings per share for at least 5 years – PASS
  2. Dividend Record – currently pays a dividend - PASS
  3. Earnings growth – EPSmg greater than 5 years ago - PASS

Valuation Summary

Key Data:

Recent Price $106.13
MG Value $112.30
MG Opinion Fairly Valued
Value Based on 3% Growth $118.57
Value Based on 0% Growth $69.51
Market Implied Growth Rate 2.24%
PEmg 12.98
PB Ratio 1.23

Balance Sheet – 3/31/2014

Total Debt $13,932,100,000
Total Assets $61,685,500,000
Intangible Assets $25,304,000,000
Total Liabilities $37,340,200,000
Outstanding Shares 281,910,000

Earnings Per Share

2014 (estimate) $8.40
2013 $8.67
2012 $8.18
2011 $7.25
2010 $6.94
2009 $9.88
2008 $4.76
2007 $5.56
2006 $4.82
2005 $3.94
2004 $3.05

Earnings Per Share – ModernGraham

2014 (estimate) $8.18
2013 $8.11
2012 $7.68
2011 $7.25
2010 $6.96
2009 $6.58

Dividend History

WLP Dividend Chart

WLP Dividend data by YCharts


WellPoint Inc. qualifies for Enterprising Investors but not for Defensive Investors.  The Defensive Investor is concerned with the short dividend record, but the company passes all of the requirements for the Enterprising Investor.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities through a review of ModernGraham’s valuation of UnitedHealth Group (UNH) and ModernGraham’s valuation of Cigna Corporation (CI).  From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $6.96 in 2010 to an estimated $8.18 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 2.24% earnings growth and leads the ModernGraham valuation model, which is based on one of Benjamin Graham’s formula, to return an estimate of intrinsic value within a margin of safety relative to the market price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on WellPoint Inc. (WLP)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in WellPoint Inc. (WLP) or any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Logo taken from wikipedia; this article is not affiliated with the company in any manner.






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