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Stock Spotlight

Growth concerns don't ail WellCare

Recent Price
$257
Dividend
$0.00
Yield
0.0%
P/E Ratio
27
Shares (millions)
45
Long-Term Debt as % of Capital
32%
52-Week Price Range
$258.01 - 162.25

WellCare Health Plans’ ($257; WCG) broad regional exposure has served it well. The managed-care provider’s sales rose 21% over the last year and 10% annualized over the last three years, while the shares have returned 119% over the last two years.

Like Focus List Buy Centene ($130; CNC), WellCare focuses on government health-care programs. WellCare is the fifth-largest provider of Medicaid insurance in the U.S. (2.7 million members in 12 states) and sixth-largest in both Medicare Advantage (506,000 members in 18 states) and Medicare Part D (1 million members in 50 states). The company continues to diversify its business geographically, adding Arizona and Nebraska to its Medicaid operations last year. As of the end of March, WellCare was the No. 1 provider of Medicaid insurance in four states — Florida, Georgia, Kentucky, and Missouri.

We initiated WellCare as a Buy and Long-Term Buy in the June 11 issue, then upgraded it to the Focus List in the June 18 issue.

Growth machine

Per-share profits increased 44% over the last year and 72% annualized over the last three. Analysts expect that train to keep on rolling, projecting profit gains of at least 17% in 2018 and 2019, and 16% annualized over the next five years. The consensus for both this year and next year has risen at least 4% over the last 60 days.

WellCare’s superior growth at least partially explains why the stock trades at a premium to its managed-care peers. The trailing P/E ratio of 25 is 24% above the industry average, yet seems reasonable relative to the profit growth of 21% expected this year.
The company has a history of growing both organically (membership expansion of 9.3% in 2017, mostly via contract wins) and acquisitions. With Medicaid spending expected to rise at an annual rate of more than 5% over the next eight years, we like WellCare’s chance to keep pacing the industry.

Pending acquisition

In May, WellCare announced plans to pay $2.5 billion in cash for Meridian’s 1.1 million Medicaid insurance members in Michigan, Illinois, Indiana, and Ohio, as well as its pharmacy-benefit manager (PBM). The deal would vault WellCare to No. 1 for Medicaid insurance in Michigan and Illinois. WellCare expects Meridian to add $4.3 billion in new revenue and boost per-share profits by at least $0.40 in 2019 and at least $0.70 in 2020. The company will fund roughly 40% of the deal via an equity offering, with most of the rest of the cash coming from new debt. The deal should close by the end of this year.

All acquisitions increase risk, though WellCare has a solid track record on this front. The Medicaid business carries its own brand of risk, with Republicans seeking to scale back the Affordable Care Act. However, politicians have been trying to gut ACA for more than a year, with no success. Even if ACA gets diluted, WellCare should be able to adapt.

Obtain an annual report for WellCare Health Plans Inc. at 8725 Henderson Road, Tampa, FL 33634, (813) 290-6200, www.WellCare.com.

 

WellCare Health Plans

 
Quarter
Per-Share Earnings
Sales Change
Quarterly Price Range
P/E Ratio Range
Mar '18
2.47
vs.
1.61
18%
$212.44
-
$187.06
25 - 22
Dec '17
0.32
vs.
1.03
24%
221.75
-
192.11
24 - 21
Sep '17
4.08
vs.
1.63
23%
201.37
-
162.25
30 - 24
Jun '17
2.52
vs.
2.23
20%
184.88
-
154.00
28 - 24

 
Year (Dec.)
Sales (Bil.)
Per-Share Earnings*
Per-Share Dividend
52-Week Price Range
P/E Ratio Range
2017
$17.01
8.52
$0.00
213.97
-
$133.21
25 - 16
2016
14.24
5.96
0.00
141.88
-
69.16
24 - 12
2015
13.89
3.44
0.00
98.79
-
71.40
29 - 21
2014
12.96
2.06
0.00
84.69
-
55.16
41 - 27

 
Quadrix Scores
Overall
Momentum
Value
Quality
Financial Strength
Earnings Estimates
Performance
91
77
54
94
34
89
86

* Earnings exclude special items.
NA Not Available.
† Quadrix® scores are percentile ranks, with 100 the best.
e Dividend and yield estimated.

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