updated 4/26/2006 5:00:08 PM ET 2006-04-26T21:00:08

WellPoint Inc., the nation’s largest health insurer, said Wednesday that its first-quarter profit grew 20 percent on the heels of its December acquisition of rival WellChoice Inc.

For the three-month period ending March 31, net income was $731.8 million, or $1.09 per share, compared with $611.7 million, or 98 cents per share, the year before. The latest quarter included 4 cents per share in stock-option costs and investment losses of 1 cent per share, while the prior-year quarter included tax benefits of about 4 cents per share.

Revenue for the Indianapolis-based company climbed 26 percent to $13.6 billion, as premium revenue was up 26 percent and administrative fees rose 34 percent.

On average, analysts surveyed by Thomson Financial forecast a quarterly profit of $1.07 per share, including stock-option expenses, and revenue of $13.8 billion.

Medical enrollment totaled 34.2 million members at March 31, an increase of more than 5.6 million members from 28.5 million a year earlier, including approximately 4.8 million members acquired through the WellChoice transaction. WellPoint completed the purchase of WellChoice in late December.

“Our first-quarter results build upon the exceptional performance we achieved last year and establish a strong foundation for yet another successful year of growth going forward,” said Larry C. Glasscock, WellPoint’s chairman, president and CEO.

Still, company shares slipped in trading Wednesday because of broader concerns about cost pressures in the health insurance industry. WellPoint stock has fallen nearly 12 percent so far this year.

“There’s just not enough enrollment to keep pricing strong,” Beth Senko, a principal with Williams Capital Group in New York, said of the health insurance segment.

But she praised WellPoint for its decreasing medical cost trend and quick turnaround of claims.

“To me, it was good,” she said of the quarter. “It was clean.”

Cowen & Co. analyst Ed Kroll said some investors may have been wary of a lower-than-expected increase in fully insured customers, but didn’t think the stock’s declined reflected more specific concerns about WellPoint.

“I’m telling people to buy the stock,” he said. “I think it’s a good opportunity when you have solid fundamentals and the stock is down like this.”

WellPoint executives said the company expects to complete its nearly $3 billion share buyback plan this quarter. The buyback was increased by $1 billion in March.

Looking ahead, the company pegged its per-share profit at $1.14 for the second quarter and $4.63 for the year. Operating revenue for 2006 is expected to total about $56.6 billion, WellPoint said, with year-end medical enrollment of about 34.8 million members.

Analysts expect WellPoint to earn $1.13 per share in the second quarter and $4.57 for 2006.

Separately, the company announced an agreement to acquire the Medicaid plan from QualChoice Health Plan Inc., an Ohio-based managed care organization. Financial terms weren’t disclosed. QualChoice serves about 68,000 Medicaid members.

The transaction is expected to close in the third quarter and is not expected to materially affect the company’s current 2006 guidance.

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