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Shares of health benefits provider WellPoint Inc (WLP) traded higher on Monday to lead the S&P 500 following news that WLP was buying Amerigroup Inc (AGP).

(click to enlarge)WLP ChartWLP data by YCharts

The Deal

  • WellPoint will pay $92 per share to acquire Amerigroup, a more than 40% premium from Amerigroup's Friday closing price.
  • Total deal valued at $4.9 billion.
  • The deal will be financed by cash and debt.
  • Deal values Amerigroup at more than 28 times earnings.

WellPoint Rally

More often than not, when a company announces a big acquisiton the acquiring company's stock falls. The fact that WLP is trading higher, not lower, following the deal is a bullish indicator for WLP. For short-term traders, this is probably the most important aspect of the deal as the deal will not have much of an impact on WLP over the short term. The move is even more impressive when considering WLP is leading the S&P 500.

Valuation

WLP is currently trading at 8.5 times trailing earnings, 7.3 times forward earnings, and at a PEG of 0.78. These numbers indicate that WLP is certainly not overvalued based on traditional metrics.

My Take

As discussed in my article about the move higher in Wellcare Health (WCG), I believe the 2012 election will have a major impact on the sector. However, I believe short-term traders could go long WLP for a move quick higher based on Monday's performance.

Source: WellPoint Leads S&P 500