S&P: WellPoint a Strong Buy

Analyst Phillip Seligman is positive on the company's planned acquisition of WellChoice. Plus: Opinions on Union Pacific and Regis

WellPoint (WLP ) : Maintains 5 STARS (strong buy)

WellChoice (WC ) : Maintains 3 STARS (hold)

Analyst: Phillip Seligman

WellPoint plans to acquire WellChoice, the last publicly traded Blue Cross/Blue Shield licensee outside WellPoint, for $6.5 billion -- $77.23 in cash and stock for each WellChoice share, a 9.1% premium to WellChoice's 9/26 closing price. The deal, if completed, would give WellPoint 5 million members and a large foothold in New York, which we believe would aid WellPoint's national accounts business. Also, we see synergies to be realized by combining WellChoice's backoffice with WellPoint's Connecticut unit and the addition of WellChoice members into WellPoint's in-house pharmacy benefit manager. Our 12-month target price for WellPoint is $88. Our 12-month target price for WellChoice remains $75, which assumes a tax effect on the deal's cash portion.

Union Pacific (UNP ) : Maintains 2 STARS (sell) Opinion

Analyst: Andrea West, CFA

Union Pacific updated its estimates of the effect of the recent hurricanes on its operations, projecting that Hurricane Rita and related customer embargoes enforced for the Houston, Texas area will reduce third quarter operating income by about $25 million. Union Pacific indicated that third quarter earnings per share were likely to reach the low-to-mid range of its prior 88 cents to 98 cents guidance. We see the major impact coming from lost revenues and rising fuel costs, and are reducing our 2005 earnings per share estimate to $3.41 from $3.47. We are maintaining our 12-month target price of $65, based on a blend of our discounted cash flow and relative valuation models.

Regis (RGS ) : Reiterates 3 STARS (hold) Opinion

Analyst: Michael Souers

Due to the impact of Hurricane Katrina, Regis has changed its September quarter earnings per share guidance to at, or slightly below, the low end of its previous guidance range of 51 cents to 56 cents. The company estimates that 3,000 lost salon days resulted from Katrina, or about $3.0 million in lost revenue, and over 200 salons remained closed as of September 25. We are lowering our fiscal year 2006 (ending June) earnings per share estimate to $2.34 from $2.36 as a result. However, our fiscal year 2007 estimate of $2.64 and 12-month target price of $44 are unchanged, as we believe the operational disruption is entirely temporary.


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