Continued Strength In Medicaid Bodes Well For WellCare, Argus Says

WellCare Health Plans, Inc. WCG, a managed care company, is well positioned to take advantage of favorable industry-wide conditions both domestic and international, according to Argus.

The Analyst

Argus Research's John Staszak initiated coverage of WellCare Health Plans with a Buy rating and $265 price target.

The Thesis

WellCare's focus on government sponsored managed care services makes it well positioned to benefit from the ongoing strong within Medicaid, Medicare Advantage (MA) and Medicare Prescription Drug Plans (PDP), Staszak said in a note. The company has more than half a million Medicare Advantage members, 1.2 million Medicare Part D members, and 2.7 million Medicaid members and can grow its revenue by 10 percent in 2018 to $18.7 billion due to:

• Prospects in the Medicare Advantage market;
• Favorable demographic trends like increasing sales of private health plans to Medicare members;
• The 2017 acquisition of Universal American Corp could expand its presence further; and
• Benefits from a lower tax rate of 34.5-36 percent versus a prior 51-53 percent rate.

Despite the fact that the stock has gained 260 percent over the past five years, there's room for further appreciation over the longer-term when factoring in benefits from an aging population, the analyst wrote. The stock is trading at 22x 2018E EPS is a premium to the group average of 17x, but warranted given the company's history of earnings beats in 13 of the past 14 quarters and favorable exposure to trends in medical costs.

Price Action

Shares of WellCare Health Plans were trading around $228.49 Thursday afternoon.

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