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Why Is WellCare (WCG) Down 16.1% Since Last Earnings Report?

Zacks Equity Research
Reliant Bancorp (RBNC) delivered earnings and revenue surprises of 0.00% and -1.25%, respectively, for the quarter ended June 2019. Do the numbers hold clues to what lies ahead for the stock?

It has been about a month since the last earnings report for WellCare Health Plans (WCG). Shares have lost about 16.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is WellCare due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

WellCare Health Q4 Earnings Beat Estimates, Soar Y/Y

WellCare Health delivered fourth-quarter 2018 adjusted operating earnings of $1.63 per share, beating the Zacks Consensus Estimate by 5.2%. This upside is backed by Meridian buyout and membership growth. Moreover, the bottom line skyrocketed 409.4% year over year.

Total revenues of $6 billion, surpassed the Zacks Consensus Estimate by 3.8% and was up 39.7% year over year. This was mainly driven by the company’s purchase of Meridian, organic growth, reinstatement of the Affordable Care Act  (ACA) Health Insurer Fee and the associated Medicaid ACA HIF reimbursement.

Adjusted selling, general & administrative (SG&A) expense ratio was 8.9% in the reported quarter, down 130 basis points from 10.2% in the year-ago period.

Q4 Segmental Results

Medicaid Health Plans


As of Dec 31, 2018, membership soared 44.4% to 3.9 million. This upside was aided by the acquisition of Meridian.

Adjusted Medicaid Health Plans premium revenues were $4 billion, up 50% year over year on the back of Meridian buyout and membership growth from business expansion in Illinois and Arizona. However, the same was partially offset by lower members in certain markets.

Adjusted Medicaid Health Plans’ Medical Benefit Ratio (MBR) was 92% compared with 90% in the year-ago period, attributable to Meridian buyout and business expansion in Arizona. However, the same was offset by the company’s operational execution to some extent.

Medicare Health Plans

As of Dec 31, 2018, Medicare Health Plans membership was 0.5 million, up 9.9% year over year, boosted by the Meridian transaction and organic growth.

Medicare Health Plans revenues of $1.6 billion increased 12.9% year over year. This was primarily owing to the company's Meridian integration and organic growth, courtesy of the company’s bid strategy.

MBR was 87.1% compared with 88.4% in the prior-year quarter. This was mainly owing to the 2018 reinstatement of the ACA HIF, the company’s bid strategy and its constant operational execution.

Medicare PDP

Medicare PDP membership was 1.1 million, down 8.2% year over year and premium revenues were $192.8 million, down 11.6% year over year, both due to bid positioning.

MBR for the reported quarter was 59% compared with 71.4% in the year-earlier quarter.

Financial Update

As of Dec 31, 2018, unregulated cash and investments were $516 million, down 16.4% year over year.

Net flow from operating activities was $279 million, down 294% year over year.

Days in claims payable (DCP) were 52.2 for the fourth quarter of 2018 compared with 51.9 days in the comparable quarter last year.

2019 Outlook

Following solid 2018 results, the company raised its outlook for 2019. It now expects EPS in the range of $13.25-$13.50, up from its previous projection of $13.15-$13.40 per share. It has also hiked its lower end of the guidance for revenues, anticipating the same to be in the $25.7-$26.6 billion band.

Full-Year Highlights

The company’s 2018 adjusted net income came in at $11.03 per share compared with $8.52 for 2017. Moreover, its revenues for the period totaled $20 billion, up 18.3% year over year.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

Currently, WellCare has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions indicates a downward shift. It comes with little surprise WellCare has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.



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