UPDATE: Credit Suisse Initiates Coverage on WellCare Health Plans

In a report published Thursday, Credit Suisse analyst Chris Carter initiated coverage on WellCare Health Plans WCG with a Neutral rating, establishing a $77.00 price target. According to the report, while the analysts are positive on WCG and its strategy, they see NT risk around the margin outlook for MA (~30 percent of EBITDA), given expected rate pressure in 2014-15. They also have less visibility on the EPS outlook for 2014 (WCG will give guidance in Feb), and our estimates sit slightly below consensus. “We believe WCG will be a net beneficiary of a secular trend toward privatization of gov't-managed healthcare (Medicaid and Medicare),” the report noted. “Additionally, the company is in a strong capital position, with ~$1.1B in statutory capital and $640M of deployable capital on its BS, which provides flexibility for internal growth and/or M&A. We also view WCG as a potential take-out candidate, providing some level of valuation support.” WCG closed Wednesday at $70.44.