WellPoint forecasts conservative 2011

NEW YORK (Reuters) - WellPoint Inc (WLP.N) offered a cautious a 2011 earnings forecast that could fall short of Wall Street's target as it confronts new spending rules from the recently passed healthcare overhaul.

But the largest U.S. health insurer by enrollment also sent some positive signs about 2011, including projections of membership growth and administrative cost savings. Its shares rose 1.7 percent to $62.75 as it also posted better-than-expected fourth-quarter profit on Wednesday.

"Despite a slightly below consensus 2011 outlook, management offered some positive signals about drivers of upside for 2011," Sanford Bernstein analyst Ana Gupte said. "The forecast is cautious but no more than the other insurers."

WellPoint projected 2011 profit would be "at least" $6.30 per share. Analysts were looking for $6.58, although some previously said they expected WellPoint to issue a conservative forecast.

Stifel Nicolaus analyst Thomas Carroll said that in 2010 WellPoint easily exceeded its initial full-year view, and is positioning itself to do the same in 2011 "as uncertainties subside."

The prospects for health insurers this year have been clouded by new rules created under the recently passed U.S. healthcare overhaul that governs how much insurance companies spend on medical care as opposed to administrative costs and profit.

Among insurers, WellPoint is at the center of the new spending requirements because of its substantial business providing individual coverage, which is a focal point for the rules.

WellPoint expects a roughly $300 million hit from the spending requirements. But the company also said it would be able to offset the impact from administrative cost savings.

"We continue to view 2011 as a base year from which we can grow in the future," WellPoint Chief Executive Officer Angela Braly told analysts on a conference call.

Shares of WellPoint and other health insurers have outperformed the broader market this year as investors see opportunity in the beaten-down sector, which has been plagued with concerns over fallout from the healthcare overhaul.

For 2011, WellPoint shares had risen 8.5 percent through Tuesday. The Morgan Stanley Healthcare Payor index .HMO of insurers is up about 8 percent in that time, while the broader S&P 500 index .SPX has climbed about 3 percent.

WellPoint's fourth-quarter net income was $548.8 million, or $1.40 per share. That compared with $2.74 billion, or $5.95 per share, a year earlier, when WellPoint recorded gains from the $4.68 billion sale of its drug benefit business.

Excluding items, earnings of $1.33 per share topped estimates by 10 cents, according to Thomson Reuters I/B/E/S.

The company cited lower-than-expected utilization of medical services, while noting that costs related to the flu were lower than a year earlier.

The results of health insurers have been lifted all year from Americans delaying procedures or doctor visits due to the weak economy.

The companies have generally said they are planning for a rebound of medical costs to more traditional levels in 2011, although some on Wall Street speculate the lower utilization could persist.

WellPoint also benefited in the quarter from a lower-than-normal tax rate -- 27 percent versus a more normalized 36-37 percent -- according to Stifel's Carroll.

The year-end accounting in some states led to the overall tax rate being lower because the company lost money in some product lines, WellPoint said. It told analysts on a conference call it did not expect the lower rate to continue.

In addition to the tax rate, Wells Fargo analyst Peter Costa said a one-time reserve release related to adverse events such as a pandemic flu also helped results.

In 2010, WellPoint posted a $110 million loss in its individual business in California, where the national controversy over premium increases has taken root. The company said it expects a smaller loss in the California individual business in 2011 as rates improve and then expects it to be profitable in 2012.

WellPoint follows UnitedHealth Group Inc (UNH.N) in posting better-than-expected fourth quarter results. UnitedHealth also announced a shuffling of its top management when it posted results last week.

WellPoint's revenue fell 4 percent to $14.42 billion, about $160 million above analyst targets.

Its membership stood at just over 33.3 million at the end of December, down 1 percent from a year earlier.

(Reporting by Lewis Krauskopf; Editing by Lisa Von Ahn, Derek Caney, Dave Zimmerman)