WellPoint (WLP) Investors Cheer CEO's Departure; Stock Rallies 9%
Shares of Indianapolis-based health insurer WellPoint (WLP: Charts, News) rallied yesterday after the company announced that its besieged CEO, Angela Braly, had resigned. During Braly's five year tenure, WellPoint's stock has lost 20% of its value. Over the past twelve months, WellPoint has dropped 5%, underperforming the broader market and its industry peers, such as UnitedHealth Group (UNH: Charts, News), the country's largest insurer.
During this period, when WellPoint went from outperforming the S&P 500 index by 2% to underperforming it by 17%, the company lost $9 billion of its value. Braly was deeply unpopular with major shareholders, whom eventually pushed for her resignation. Daily Chart
51-year old Angela Braly was an outspoken opponent of President Obama's health care overhaul plans, which brought in negative PR, and also disappointed investors with a broad earnings miss exacerbated by two guidance reductions within four months. Braly was publicly berated by major institutional investors such as The Royal Management Group, Orbimed Advisors LLC, and Omega Advisors Inc. Highlighted problems include difficulties forecasting medical costs and setting premium prices that lowered demand. Some investors also believe that Braly forced out valuable executives, that caused a "brain drain" at the company. Braly has also been criticized for spending billions of dollars on share buybacks, which merely decrease outstanding shares without forward-looking investments, in an attempt to appease shareholders. In the second quarter alone, WellPoint bought back $493.7 million in shares at an average price of $68.53, paying a premium of 16% in comparison to the current price for its own shares. In a brief note to employees, Braly stated, "I have spoken with our board and we have agreed this is the right action for WellPoint at this time. The board and I feel, though, that the company will benefit from getting a fresh perspective on ways we can improve execution across the company." This is an epic fall from grace for Braly, who was one of only 20 women leading Fortune 500 companies. In June, WellPoint acquired eyewear provider 1-800-Contacts for $900 million. Last month, the company also acquired industry peer Amerigroup for $4.9 billion, which made WellPoint the largest private provider of Medicaid programs. Whoever fills Braly's shoes will have to quickly and efficiently integrate these large mergers with minimal acquisition digestion. As Braly's replacement, investors have recommended Amerigroup (AGP
) CEO James Carlson, former chief of Medco Health Solutions (MHS: Charts, News) David Snow Jr., and Gail Boudreaux, the head of the health plan division of United Health. WellPoint's board of directors have also recommended CFO Wayne Deveydt and executive vice president Kenneth Goulet. In Braly's absence, WellPoint general counsel John Cannon will take the helm as interim CEO. Cannon is not regarded as a potentially permanent replacement for Braly. Analysts believe that with the right leadership, WellPoint shares could recover at least 10% from current levels to reflect the value of these new business segments. Shares of WellPoint trade at 7.7 times forward earnings with a 5-year PEG ratio of 0.79. The stock pays a quarterly dividend of 29 cents per share, a 1.9% yield at current prices, and has traded in a wide 52-week range between $52.21 and $74.43. Other News About WLP WellPoint's CEO Braly Resigns Amid Shareholder Criticism
WellPoint rallies on news of CEO's departure. Angela Braly Resigns as WellPoint President, CEO
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Yelp investors breathe a sigh of relief as shares rally after the lockup expiration Copyright 2012 by InvestorGuide.com, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA InvestorGuide.com, Inc.) or its employees responsible.
Published on Aug 30, 2012
By Leo Sun