WLP offers a wide variety of managed care plans including HMOs, PPOs, consumer-driven, point-of-service and hybrid plans, and it holds the exclusive Blue Cross/Blue Shield license in 14 states. The company also participates with Medicare and Medicaid and won a $273 million administrative contract for those services last fall.
On the downside, WLP reported in April that its membership has fallen about 2% over the past year. The ACA could drive a lot of customers to WLP if the law’s individual mandate is upheld. The company is taking the smart step of diversifying: WLP announced Monday it will acquire 1-800-CONTACTSto stake a claim in the direct-to-consumer business
WLP is trading around $65.50, 15% above its 52-week low last August, though it has slipped about 11% over the past couple of months. WLP’s PEG ratio of 0.8 indicates it’s undervalued, and its forward P/E of a little above 8 compares favorably to many of its peers. It also has a decent 1.8% dividend.
Although the year-over-year membership declines and its -15% one-year returns are concerns, WLP still has several things to like, particularly if Obamacare is upheld. Holding the exclusive license for the Blues in 14 states — especially in California — will put the focus on new customers entering the system. And if leveraged properly, the 1-800-CONTACTS diversification is smart and will pay off for WLP regardless of the outcome of the ACA challenge.
I consider WLP a buy, with a price target of $74. But shares actually slipped on Monday despite the 1-800-CONTACTS news, so it easily could slide further before the Court hands down its ruling.
Like all companies in the sector, Aetna (NYSE:AET) is closely watching what happens to the ACA. But CEO Mark Bertolini predicts that at least some of the law will survive the constitutional challenge — particularly those parts that are most attractive to consumers, like keeping adult children on their parents’ policies until they turn 26. “You’ll see this big movement for repeal, but you’ll very quickly hear ‘replace’,” Bertolini said at the recent Sanford Bernstein investors’ conference in New York.
AET boasts nearly 18 million members. It offers consumer-directed plans as well as employer plan benefits in all 50 states. It serves Medicare and Medicaid in certain markets, although it’s exiting Connecticut’s Medicaid program.
In April, Aetna reported first-quarter earnings were 13% lower than the same quarter last year. On the upside, it has invested heavily in technology to gain greater efficiency, and its health insurance partnership with Costco (NASDAQ:COST) is a savvy move
AET is trading around $40.50, 21% above its 52-week low in August, but down about 19% in the past two months. AET has an attractive 0.7 PEG ratio and a forward P/E of 8, and it yields 1.7%.
Of the three managed care stocks mentioned here, a ruling to uphold the individual mandate could benefit Aetna the most because it could accelerate the reversal of recent membership declines. Its Healthy Commitments employer wellness programs would be a great fit for what will likely be a shift toward incentive-based health management at many companies. I rank Aetna a buy, with a target of $50.
As of this writing, Susan J. Aluise did not hold a position in any of the stocks named here.