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Market Update

Earnings on Tap: WellPoint

Despite several risks, the health insurance giant enjoys meaningful cost advantages from its unmatched combination of regional and national scale.

Mentioned:

 WellPoint (WLP) is scheduled to report first-quarter earnings Wednesday morning before the markets open. The consensus estimate is calling for earnings of $2.37 per share, slightly lower than $2.53 per diluted share reported in the corresponding period a year ago.

The health insurer posted a higher-than-expected 38% rise in fourth-quarter earnings, supported by lower-than-anticipated commercial medical costs and stability in its membership base. Fourth-quarter net income totaled $464.2 million, or $1.51 per share.

The health insurance giant, however, gave a cautious outlook for 2013, with full-year net income likely to be at least $7.60 per share. Full-year net income for 2012 was approximately $2.7 billion, or $8.18 per share.

WellPoint faces several risks, including heightened regulatory scrutiny of premium increases and the possibility that health insurance exchanges will increase competition and erode the company's economic moat. 

On the other hand, the insurer also enjoys meaningful cost advantages from its unmatched combination of regional and national scale.

The stock has gained more than 12% since the start of the year but still trades lower than Morningstar's fair value estimate, giving investors a reasonable margin of safety.

Gazala Parveen does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.