Investors who had been sharply criticizing WellPoint (NYSE:WLP) CEO Angela Braly got their wish on Tuesday afternoon, as Braly resigned both her position as CEO (which she had held since mid-2010) and chair of the board of directors (which she had held since early 2010). With WellPoint taking on both the challenges of the upcoming health insurance reforms and the acquisition/integration of Amerigroup (NYSE:AGP), it will be critical for the board to identify and hire a strong operator that can restore investor confidence in this floundering health insurance giant.

Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.

Execution Issues Bedevil the Chief Executive
Although it's relatively uncommon for a Fortune 500 company to experience an unplanned change in leadership, Braly's resignation is not wholly unexpected. There has been a steady drumbeat of grumbling for a couple of years now; a drumbeat that intensified significantly in recent weeks with the company's disappointing second quarter earnings and guidance announcement. In particular, WellPoint has made a series of execution missteps that are difficult to ignore - from claims cost issues back in 2008 to compliance issues in 2009 to issues with product design, flawed rate increases, and medical costs in recent years. All in all, with problems on both the enrollment and price/cost side, it's been hard to defend WellPoint's performance at a time when companies like Unitedhealth (NYSE:UNH) have been executing so much better. What's more, it's difficult to defend the performance of WellPoint's stock over Braly's tenure, as it has notably lagged Humana (NYSE:HUM), Unitedhealth and Cigna (NYSE:CI).

While a five-year record of execution issues would arguably be enough in its own right, those weren't the only complaints of many investors. I can appreciate the long-term strategic possibilities of the 1-800-Contacts deal, but I'm apparently in the minority and I would agree with those who claim the company has not adequately explained its strategy with this deal. Moreover, with WellPoint facing major exposure to upcoming changes in the commercial health insurance industry, I can appreciate how a lack of confidence in the company's long-term vision led to calls for a change at the top.

SEE: Pages From The Bad CEO Playbook

Where Does WellPoint Go Now?
In the wake of Braly's resignation, the board has named Executive Vice President and Executive Counsel John Cannon as the interim CEO. He has asked not to be considered for the job on a permanent basis, so speculation is going to ensue as to who will follow as the next leader of the company. I don't know enough about Braly's management style to know the extent to which WellPoint's problems reflect a lack of skill on the part of WellPoint's senior management team, or a lack of willingness to listen and follow those managers. Internal candidates would likely include the Chief Financial Officer (DeVeydt) as well as Executive Vice President Goulet. This could be a good opportunity to inject new blood and a new outlook by looking outside the company. Solid external candidates would include Amerigroup's CEO Carlson, former MEDCO CEO Snow, and perhaps senior executives from Unitedhealth. At a minimum, I would hope the board takes this opportunity to take a shareholder-friendly move and permanently separate the positions of CEO and Chair of the board.

SEE: CEO Savvy And Stock's Success Go Hand In Hand

Uncertainty Blended with Opportunity
I have thought that WellPoint's intrinsic value is higher than its market value for some time now, but I think I underestimated the extent of both WellPoint's strategic mistakes and investor perception of management. Perhaps it's a bit ironic, but this reported shareholder revolt against Braly somewhat supports that view - why bother pestering a company's board to change the CEO if you don't think there's substantial unrealized value at stake?

SEE: What Is The Intrinsic Value Of A Stock?

The Bottom Line
With both the Amerigroup deal and the upcoming changes to the industry (barring November election results that could ultimately reverse those changes), WellPoint has ample opportunity and ample uncertainty. With the right CEO and the right strategy, WellPoint ought to be able to lever its large commercial business and Blue Cross licenses into real value. In the meantime, though, while I expect the shares to pop a bit on this news, the uncertainty and risk premium on WellPoint is definitely higher now until the company names its new permanent CEO.

At the time of writing, Stephen D. Simpson did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Stock Analysis

    Why the Bullish Are Turning Bearish

    Banks are reducing their targets for the S&P 500 for 2016. Here's why.
  2. Stock Analysis

    How to Find Quality Stocks Amid the Wreckage

    Finding companies with good earnings and hitting on all cylinders in this environment, although possible, is not easy.
  3. Investing News

    What You Can Learn from Carl Icahn's Mistakes

    Carl Icahn has been a stellar performer in the investment world for decades, but following his lead these days could be dangerous.
  4. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  5. Investing

    What Investors Need to Know About Returns in 2016

    Last year wasn’t a great one for investors seeking solid returns, so here are three things we believe all investors need to know about returns in 2016.
  6. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  7. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  8. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  9. Stock Analysis

    The Top 5 Micro Cap Biotechnology Stocks for 2016 (BSTC, OSIR)

    Discover some of the most promising micro-cap biotechnology stocks that investors can consider for their 2016 investment portfolio.
  10. Investing News

    Chipotle Served with Criminal Probe

    Chipotle's beat muted expectations and got a clear bill from the CDC, but it now appears that an investigation into its E.coli breakout has expanded.
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center