WellPoint could absorb reforms, thrive

Angela Braly, president and CEO of WellPoint Inc., speaks at the Reuters Health Summit in New York, November 17, 2008.

NEW YORK (Reuters) - Fears of sweeping healthcare reform weighing on WellPoint Inc (WLP.N) shares may be overblown, and the U.S. health insurer can thrive despite possible changes, its chief executive said on Monday.

The newly elected Democratic administration has vowed to increase healthcare coverage, leading to investor anxiety about the shape such reform could take and its impact on the health insurance sector.

"Part of what we see in our industry and our stock valuation is a reflection of anticipation of regulatory reform that would impact us in a negative way," Chief Executive Officer Angela Braly said.

"My belief is we could be much more regulated than we are and continue to grow and prosper as a company, so we need to make sure people understand that and share that story," Braly told the Reuters Health Summit in New York.

Shares of WellPoint have fallen some 60 percent this year, while the Standard & Poor's Managed Health Care index .GSPHMO is down 64 percent. Braly said the health-insurance industry's valuations "seem incredibly low."

WellPoint cut its 2008 forecast in March, and virtually every major health insurer has since lowered its profit forecast for the year -- in some cases more than once. Previously, the industry saw five years of relatively steady share price gains buoyed by higher profit margins.

"People said 'You were the guys to declare the party is over,'" Braly said of its profit warning.

Now, she said: "We need to continue to have stability, because when the party was over people lost a little confidence in the industry, and I think that's carried through. So we need to show stability."

Although WellPoint must be careful with its capital in the shaky economy, Braly said the company is still in the market for acquisitions while others may be forced to stay on the sidelines.

"It makes sense to me that there would be opportunities that would arise as a result of this economy," Braly said.

She said it "would make good sense for us to wisely use our capital and our access to liquidity that others may not have right now to do those kinds of acquisitions."

WellPoint, which at 35 million members is the largest U.S. health insurer, doesn't need to get bigger, but other companies not as well placed to weather the economic storm might seek out WellPoint, Braly said.

"Others who might be available in the marketplace eventually in this kind of economy might be attracted to a partnership with us because we offer scale," she said.

Unemployment is at its highest level in 14 years, but WellPoint expects to grow its enrollment next year, Braly said, although she declined to specify by how much.

"As times are tough, there will be winners and losers in our industry, and we are strong financially and we're very stable, and our ability to continue to attract customers is a reflection of that," she said.

One analyst recently said health insurers should be valued between 5 and 8 times forward earnings projections. Braly said that valuation "feels low."

For example, she said, investors are undervaluing the company's pharmacy benefit business, which is the fourth-largest in the country, noting that independent pharmacy benefit managers hold much higher P/E ratios.

"We don't get the value of it embedded within our organization, so the P/E doesn't really reflect the sum of all the parts," Braly said.

Braly said she would "never say never" to possibly divesting its PBM business, although she touted the advantages WellPoint gains by keeping its pharmacy business in-house.

Shares of WellPoint were down 21 cents at $35.03 in afternoon trading on the New York Stock Exchange.

(For summit blog: summitnotebook.reuters.com/))

(Reporting by Lewis Krauskopf, Debra Sherman and Bill Berkrot; Editing by Phil Berlowitz and Gerald E. McCormick)