Medicare Advantage Could Boost WellCare Investors, Says J.P.Morgan

Shares of WellCare Health Plans, Inc.

have surged as much as 12 percent Monday after J.P.Morgan upgraded the stock to "overweight" from "neutral" on the back of recent proposal by CMS to hike Medicare Advantage rates. The Centers for Medicare and Medicaid Services (CMS) on Friday announced a proposal of 1.35 percent increase in rates for Medicare Advantage (MA) plans, and proposed to adjust Star Ratings to reflect the socioeconomic and disability status of a plan's enrollees. "Although the 2017 dual-risk score model and 2018 Star Rating changes for low-income are probably not as material as some have hoped, CMS' decision to not explicitly recoup the 2017 HIP Holiday is quite material to WCG given the company's low margin profile," analyst Gary Taylor said in a client note. The analyst, who also raised the price target on the stock to $114 from $80, said WCG's MA, PDP (prescription drug plan), and MDCD operations outside of Florida, Georgia and Kentucky as subscale operations with lower sustainable margins. But, the analyst noted that the recent CMS relief on dual eligible risk scores and the HIP fee holiday will help margin outlook materially in 2017.