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Value

Tracey Ryniec

WellCare Health Plans, Inc.

WCG

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Managed health care stocks are bargains. WellCare Health Plans, Inc. (WCG - Snapshot Report) is trading at just 13.8x forward estimates yet it's expected to see double digit earnings growth in 2011.

WellCare serves 2.4 million members in managed care plans targeting government-sponsored programs such as Medicaid and Medicare. Its health care plans cover families, children, and the disabled.

The company also offers prescription drug plans.

WellCare Blew By the Zacks Consensus in the First Quarter

On May 6, WellCare reported its first quarter results and crushed the Zacks Consensus Estimate by 371%. Earnings per share were 66 cents compared to the consensus of just 14 cents. WellCare made just 17 cents in the prior year quarter.

Membership grew 9% to 2.4 million from 2.2 million mainly due to growth in the Medicare Prescription Drug Plans ("PDP") which jumped 27%.

There was also a small increase of 1,000 members in the Advantage membership. Medicaid actually decreased by 3,000 to 1.3 million members.

Membership as of March 31, 2011, increased to 2.4 million, compared with 2.2 million members as of March 31, 2010. PDP segment membership increased 199,000 year-over-year, or 27%.

Medicare Advantage membership increased year-over-year by 1,000 members. Medicaid segment membership decreased by 3,000 year-over-year to 1.3 million members as of March 31, 2011.

Premium revenue rose 8% to $1.5 billion as the PDP segment premium revenue rose 36% year over year.

Winding Down Litigation

The company is finally putting the legal issues behind it so it can focus on its business.

On May 4, the US District Court approved the Stipulation and Agreement of Settlement regarding the class action complaints filed in Oct 2007 and Nov 2007 involving a purported scheme by the company's former senior management to misappropriate Medicaid funds to inflate the company's income.

The company made a cash payment of $52.5 million in March and will make another $35 million payment in July.

WellCare already took a charge for the full amount of the settlement in the second quarter of 2010.

Zacks Consensus Estimate for 2011 Jumps

Not surprising, given the big beat in the first quarter, the analysts scrambled to raise estimates for the full year.

In the last 60 days, the 2011 Zacks Consensus Estimate climbed to $3.73 from $2.78 per share.

Earnings are expected to grow about 40% compared to the $2.67 made last year.

Still a Lot of Value

Shares have been hitting new 3-year highs nearly daily recently.

But even with the stock being hot, the company has lots of value.

In addition to an attractive P/E under 15, which is the cut-off I use for "value" stocks, the company has a price-to-book ratio (P/B) of 2.6, which is also within the value parameters of under 3.0.

Its price-to-sales (P/S) ratio of 0.4 also signals value as a P/S ratio under 1.0 usually means a company is undervalued.

WellCare is that rare value stock that also has growth and, right now, momentum.

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Turnaround Trader and Insider Trader services. You can follow her at twitter.com/traceyryniec.

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