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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Jurgis Bekepuris who wrote (30316)	3/12/2008 12:30:38 PM
From: Spekulatius	Read Replies (2) \| Respond to of 78704

WLP, what do you use as an input for ROE. Do you use tangible equity or nontangible? Both have a lot of goodwill on the books due to mergers, WLP more so than UNH. Both also have been buying back lot's of stock, which reduces tangible equity. Based on tangible equity the ROE for both UNH and WLP is extremely high. What this means is that incremental new business does not require a whole lot of capital. the way I see it, medical costs are going to rise in the high single digits, so assuming that market share is constant and they won't do any mergers, their revenues should do likewise. not a bad business in that sense. the problem as we found out is that it really depends on getting their cost trends right. They pay back 80% or thereabouts on premiums and have about 14-15 SG&A cost and the remainder is profit. if they miscalculate costs by 1% their profit will tank 20%, everything else being equal.