With WellPoint (WLP) well off its 52 week high of nearly $82 a share despite the market rally, I decided to take a closer look into the stock. Here are the six points I researched at:
Valuation: WellPoint's trailing 5 year valuation metrics suggest that the stock is undervalued as all three of the metrics are in the lower end of their respective 5 year ranges. WellPoint's current P/B ratio is 0.98 and it has traded in a range of 0.9 to 2.2 over the past 5 years. WellPoint's current P/S ratio is 0.38 and it has traded in a range of 0.3 to 0.9 over the past 5 years. WellPoint's current P/E ratio is 8.98 and it has traded in a range of 4.5 to 16.3 over the past 5 years.
Forward Valuation: WellPoint is currently trading at about $65 a share with analysts expecting EPS of $8.51 next year, an earnings increase of 10% y/y, for a forward P/E ratio of 7.6. Taking a look at the company's publicly traded comparisons will give us a better idea of the stock's relative valuation. Aetna (AET) is currently trading at about $44 a share with analysts expecting EPS of $5.63 next year, an earnings increase of 10% y/y, for a forward P/E ratio of 7.8. UnitedHealth (UNH) is currently trading at about $51 a share with analysts expecting EPS of $5.41 next year, an earnings increase of 13% y/y, for a forward P/E ratio of 9.5. Humana (HUM) is currently trading at about $90 a share with analysts expecting EPS of $7.99 next year, an earnings decline of -5% y/y, for a forward P/E ratio of 11.3. The mean forward P/E of WellPoint's competitors is 9.5 which suggests that WellPoint is undervalued relative to its publicly traded competitors.
Price Target: The consensus price target for the analysts who follow WellPoint is $84. That is upside of 30% from today's stock price of $65.07 and suggests that the stock is undervalued at these levels. This suggests that the stock has room to run from these levels.
Earnings Estimates: WellPoint has beat EPS estimates 3 times in the past 4 quarters. The company's EPS figures have come in between -13 cents and 48 cents from consensus estimates or about -11.6% to 25.7% from analyst estimates. The company has reported earnings that have differed from analyst estimates by a wide margin which suggests that the stock may experience upside from earnings surprises.
Top Stock Holders: The top two funds that own WellPoint are Vanguard Health Care Inv, which owns 7.6 million shares or 2.18% of the shares outstanding, and Vanguard Windsor II Investor, which owns 5.9 million shares or 1.69% of the shares outstanding. The top two institutions that own WellPoint are State Street, which owns 16 million shares or 4.57% of the shares outstanding, and AllianceBernstein, which owns 14.6 million shares or 4.19% of the shares outstanding.
Price Action: WellPoint is up 1.1% over the past year, underperforming the S&P 500, which is up 5%. Looking at the technicals, the stock is currently below its 50 day moving average, which sits at $68.08 and below its 200 day moving average, which sits at $66.3.
Conclusion: WellPoint may be one of the few stocks that hasn't appreciated significantly over the past few months and offers opportunity for investors. The stock is undervalued significantly on the three key metrics and has a strong competitive position based on its size and Blues brand. If there is available room in the portfolio, WellPoint may be a great fit.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.