UPDATE: Sterne Agee Upgrades WellCare Health Plans

Sterne Agee analyst Brian Wright upgraded Wellcare Health Plans WCG from Underperform to Neutral. Wright also lowered his price target and earnings due to outlook that indicates increases in medical care ratio for Medicare Advantage and prescription drug plans.

Wright lowered his EPS estimate for fiscal year 2014 from $4.15 to $2.23 and for fiscal year 2015 from $4.97 to $3.80.

Wright's Neutral rating indicates that the stock should perform in-line with other names in the sector. Wright's price target was lowered from $76 to $69.

Wright mentioned that buyout activity may boost the stock's valuation:

"We expect M&A activity to heat up in the space and while we think peers may be more likely to go first, we believe that such activity will be supportive for small/midcap health plans shares in general including WellCare."

The upbeat commentary by the analyst helped to push the stock up in a relief rally.

The stock declined from $76.85 to $61.61 in Friday’s trading session; the company reported earnings that day and guidance indicated lower profitability.

The decline in profitability is reflected in Wright’s $69 price target. With the target price being higher than Monday’s trading price of $63.21, the stock may be worth another look.