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WellCare Health Grows on Revenues, Debt Level Hurts

Zacks

WellCare Health Plans, Inc.WCG continues to maintain a leading position in the industry on the back of its growth strategies. The company’s revenues have been consistently rising over the last 10 years.

The ObamaCare Act (ACA) implemented by the former U.S. President Barrack Obama contributed significantly to the company’s top-line growth. However, there remains uncertainty around “Repealing and Replacing” the ACA under the Trump administration. The Medicaid funding change is on gun point of the lawmakers which if materialises might hurt the company.

Despite the regulatory uncertainty prevailing in the industry, WellCare Health remains an attractive pick for investors.

Apart from the contribution of the ACA, the company’s revenues have also been supported by strategic acquisitions, partnerships and alliances since 2011. These initiatives not only strengthened the company’s presence in existing markets but also helped in geographic expansion.


Moreover, consistent cash inflow has helped it increase shareholders’ value through several capital deployment initiatives like share repurchases, dividend payment etc. Year to date, its shares have gained 45% while the industry has rallied 43%.

The company delivered positive earnings surprises in each of the last four quarters with an average beat of 47.37%. In the second quarter, its earnings surpassed the Zacks Consensus Estimate and grew year over year on higher revenues.

Pursuant to the earnings beat, the company also raised its earnings and revenue guidance for 2017 that boosted shareholder optimism in the stock. The company has seen its Zacks Consensus Estimate for 2017 and 2018 earnings being revised upward by 0.6% and 0.2%, respectively, in the past 60 days.

However, it suffers from rising level of debt that increases the borrowing cost, eventually draining the bottom line.

Also, the company has been witnessing a steep increase in the total expenses that are weighing on the margins.

Zacks Rank & Stocks to Consider

The stock currently carries a Zacks Rank #3 (Hold).

Investors interested in the same space can consider stocks like Humana Inc. HUM, Centene Corp. CNC and Anthem Inc. ANTM. All of these stocks carry a Zacks rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Humana, a leading managed care company, topped estimates in all of the last four quarters with an average beat of 7.2%.

Centene surpassed expectations in three of the last four quarters with an average positive surprise of 7.7%

Anthem delivered positive surprises in three of the last four quarters with an average beat of 8.6%

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