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WellCare Health to Add Windsor

Zacks Equity Research

WellCare Health Plans, Inc. (WCG) will purchase Windsor Health Group Inc. from German insurer Munich Re AG. Atlanta, Ga.-based Windsor Health Group provides Medicare Advantage, Prescription Drug Plan (PDP), and Medicare Supplement products in the U.S, through its subsidiaries.   

Windsor Health presently offers Medicare Advantage plans in 297 counties primarily in the states of Mississippi, Tennessee, Arkansas, and South Carolina, and serves approximately 59,000 members. Its PDPs serve approximately 164,000 members. One of Windsor's subsidiaries also offers Medicare Supplement insurance policies, thereby serving approximately 52,000 members across 40 states.

Windsor Health focuses on lower income Medicare beneficiaries and those with dual eligibility for Medicare and Medicaid. Therefore, Windsor Health acquisition will compliment WellCare Health’s Medicare and government health care plans. Addition of Windsor Health to its portfolio will thus enlarge its membership base and amplify premium revenues.

On the other hand, Munich Re divested Windsor Health in an effort to augment its health division’s focus on business with corporate clients.

The transaction is expected to culminate in the fourth quarter of 2013, pending regulatory approvals. There will, however, be no alteration in plan benefits and coverage for members and policyholders following the acquisition. Financial terms of the acquisition remain undisclosed.

Nevertheless, the company expects the acquisition to be accretive to net earnings in 2014. The Zacks Consensus estimate for the 2014 is currently pegged at $5.47, translating to a year-over-year improvement of 11.7%. With optimism surrounding the recent acquisition, we expect analysts to raise their estimates.

WellCare Health has always adopted inorganic routes to ramp up its growth profile. In April, the company closed the acquisition of Missouri Care, Incorporated, a subsidiary of Aetna Inc. (AET) for an undisclosed amount. In February, WellCare Health closed the acquisition of UnitedHealth Group Inc.’s (UNH) Medicaid business in South Carolina. The company’s strong cash position well supports its acquisition strategies.

In the second quarter, WellCare Health reported second-quarter 2013 adjusted operating earnings of $1.35 per share, which surpassed both the Zacks Consensus Estimate and year-ago earnings by nearly 9%. The year-over-year increase was due to higher premium revenues and lower adjusted administrative expense ratio, partly offset by the increase in WellCare Health’s medical benefit ratio. Concurrently, WellCare Health raised the lower end of its guidance by 10 cents, and revised operating earnings expectation to $4.70–$4.90 for 2013. The Zacks Consensus Estimate currently stands at $4.89, near the top end of company guidance.

Among others in the same space, recently Magellan Health Services Inc. (MGLN) announced its plans to acquire pharmacy benefits manager, Partners Rx for $100 million.

WellCare Health carries a Zacks Rank #2 (Buy).

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