WellCare Health Plans: A Strong Buy - Analyst Blog

On Jun 10, Zacks Investment Research upgraded WellCare Health Plans, Inc. WCG to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

WellCare Health witnessed rising earnings estimates on the back of strong first-quarter 2014 results. With respect to earnings surprise, the company delivered positive surprises in 3 of the last 4 quarters.

WellCare Health reported operating net earnings of $1.13 a share, steering past the Zacks Consensus Estimate of 4 cents. Earnings improved 79% year over year on meaningful growth and favorable performance of the Medicaid Health plan.

As on Mar 31, 2014, members of the Medicaid Health Plan increased 11% year over year as of Mar 2014. The improvement largely stemmed from organic growth in Kentucky as well as eligibility expansion under the Affordable Care Act and transfer of members following the exit of a competitor in Jul 2013. The Missouri Care acquisition also contributed to the upside. Furthermore, gross margin expanded 90 basis points on a lower medical benefit ratio.

Following solid first-quarter results and better-than-expected performance at the Medicaid Health Plans segment, WellCare Health raised its 2014 operating earnings guidance to the range of $4.40–$4.75 from $3.75–$4.05. The Zacks Consensus Estimate of $4.21 falls below the company's guided range.

Strong results prompted upward revisions in most of the estimates over the last 60 days. The Zacks Consensus Estimate for 2014 is currently pegged at $4.21 (up 4.2% as 4 of 5 estimates moved north) and for 2015 the estimate stands at $5.07 (up 3.9% as 7 of 10 estimates were revised higher). The expected long-term growth rate for the stock is 11.50%.

Other Stocks to Consider

Investors interested in the healthcare service provider industry may also consider stocks like Select Medical Holdings Corp. SEM, Aetna Inc. AET and Centene Corp. CNC. While Select Medical shares the same Zacks Rank as WellCare Health, Aetna and Centene Corp. carry a Zacks Rank #2 (Buy).

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