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WellCare Hits 52-Week High on Solid Q3 Results, Revised View


On Nov 25, 2016, shares of WellCare Health Plans Inc. WCG hit a 52-week high of $136.26 driven by strong third-quarter 2016 results. About 0.15 million of shares exchanged hands in the last trading session and the stock finally closed at $134.50, down 1.3%.

Over the past 52 weeks, the stock has gained 62.9% compared with a rise of just 5.6% and 24.04% in the S&P 500 Index and the Zacks-categorized Health Maintenance Organization Industry, respectively.

The stock price appreciation was fueled by the company’s robust quarterly earnings of $1.63per share that surpassed the Zacks Consensus Estimate by 46.8%. The bottom line also improved 63% year over year on operational improvement, especially in the company’s Medicaid Health Plans segment. Revenues beat the Zacks Consensus Estimate by nearly 2% and grew 4.2% year over year to $3.6 billion on higher premiums.

Medicaid Health Plans segment continues to support WellCare. Membership in this segment inched up 1.1% following the acquisition of certain assets from Advicare Corp. in Jun 2016. This led to a 7% increase in premium revenues for this particular segment

In the reported quarter, WellCare’s operating cash inflow soared 251% from the prior-year quarter. The company’s financial strength has always backed its debt servicing capacity substantially. In the last reported quarter, it repaid $100 million of the $200 million borrowed under its $850 million senior unsecured revolving credit facility.

WellCare’s guidance raise following third-quarter earnings outperformance also impressed investors. The company now expects adjusted earnings per diluted share in the range of $5.35–$5.45 as against the range of $4.95–$5.05 guided earlier.

We are also optimistic about WellCare’s strong inorganic growth story. Such initiatives have not only enabled the company to boost its revenue base but also ensure long-term growth through diversified operations. In Nov 2016, the company signed an agreement to acquire Universal American Corp. UAM for roughly $587 million to strengthen its position in the Medicare Advantage plans market.

Notably, the company delivered positive surprises through out last four quarters with an average beat of 40.01%. Based on the earnings outperformance, the Zacks Consensus Estimate for 2016 and 2017 has been revised upward by 8.3% and 2.8%, respectively, over the last 30 days.

WellCare is expected to receive a fillip from new investments and growth opportunities that are likely to open up for the company under the Presidency of Donald Trump. This in turn should result in share price appreciation. Along with WellCare, other medical sector companies like Anthem Inc. ANTM and UnitedHealth Group Inc. UNH to name a few are also counting on a better future under the leadership of the new President..

WELLCARE HEALTH Price and Consensus

Zacks Rank

WellCare presently carries Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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