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WellCare Health's Revenue Growth Strong, Rising Costs a Drag
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WellCare Health Plans, Inc. stock has long been an investor favorite owing to strong fundamentals. The company is known to engage in strategic capital deployment activities to create shareholders’ wealth, mainly backed by its strong cash position. Cash flow from operating activities that has been growing since 2011. The uptrend continued in 2016, when the company registered year-over-year growth of 5%. Over last six months, the stock has gained 19.9% compared with 18.8% gain by the Zacks categorized Health Maintenance Organization (HMO) industry.
WellCare Health’s strong underwriting results have added to its profitability. In the fourth quarter of 2016, the company’s earnings of $1.03 per share surpassed the Zacks Consensus Estimate by 94% and grew 61% year over year on strong performance across all business lines The company now expects adjusted EPS in the range of $6.00–$6.25 in 2017.
WellCare Health’s profitability has primarily been supported by its consistent revenue growth since 2002. tThe company’s revenues have increased at a 22.5% CAGR since 2011. For 2016, the insurer reported total revenue of $13.9 billion, up 3% year over year on the back of solid premium growth. Total adjusted premium revenues are expected in the band of $15.12–$15.80 billion in 2017.
Apart from premium growth, accretive acquisitions have also helped the company to grow its market share by expanding its presence across geographies..In 2016 the compny completed two acquisitions – Care1st Arizona and Advicare. The Universal American Corp. takeover is yet to be closed. These buyouts are likely to boost and diversifyWellcare Health's Medicaid business.
However, the stock’s valuation looks stretched. Its Price to Earnings Growth (PEG) ratio of 1.79 is above the industry level of 1.31. The Price to Book (P/B) ratio of 3.18 is also higher than the industry average of 1.98.
Moreover, WellCare Health has been suffering from rising level of its financial leverage since 2013. The company’s long-term debt increased 11% to $998 million in 2016 continuing the trend. This in turn increases the company’s interest expenses that again limit the bottom-line growth
The company’s cost management has also been disappointing. Since 2013, growing expenses have been putting pressure on the company’s margin. In 2016, total expense grew 1.1% to $13.7 billion, primarily due to a rise in medical benefit expenses and interest expenses.
The surprise victory of Donald Trump as the 45th U.S. President and the subsequent introduction of the American Healthcare Act (AHCA) replacing Obamacare has raised concerns for companies from this space and Wellcare Health is no exception. Obamacare had substantially boosted membership growth for health insurers and hence, its replacement by the new Republican health draft will lead to the discontinuation of the Affordable Care Act’s Medicaid expansion. This is expected to increase the number of uninsured Americans, plunging the entire medical sector into uncertainty.
HCA Holdings delivered positive surprises in the trailing four quarters with an average beat of 10.16%.
Inogen posted positive surprises in three of the last four quarters with an average positive surprise of 49.08%.
Avinger delivered positive surprises in two of the last four quarters with an average beat of 4.35%.
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WellCare Health's Revenue Growth Strong, Rising Costs a Drag
WellCare Health Plans, Inc. stock has long been an investor favorite owing to strong fundamentals. The company is known to engage in strategic capital deployment activities to create shareholders’ wealth, mainly backed by its strong cash position. Cash flow from operating activities that has been growing since 2011. The uptrend continued in 2016, when the company registered year-over-year growth of 5%. Over last six months, the stock has gained 19.9% compared with 18.8% gain by the Zacks categorized Health Maintenance Organization (HMO) industry.
WellCare Health’s strong underwriting results have added to its profitability. In the fourth quarter of 2016, the company’s earnings of $1.03 per share surpassed the Zacks Consensus Estimate by 94% and grew 61% year over year on strong performance across all business lines The company now expects adjusted EPS in the range of $6.00–$6.25 in 2017.
WellCare Health’s profitability has primarily been supported by its consistent revenue growth since 2002. tThe company’s revenues have increased at a 22.5% CAGR since 2011. For 2016, the insurer reported total revenue of $13.9 billion, up 3% year over year on the back of solid premium growth. Total adjusted premium revenues are expected in the band of $15.12–$15.80 billion in 2017.
Apart from premium growth, accretive acquisitions have also helped the company to grow its market share by expanding its presence across geographies..In 2016 the compny completed two acquisitions – Care1st Arizona and Advicare. The Universal American Corp. takeover is yet to be closed. These buyouts are likely to boost and diversifyWellcare Health's Medicaid business.
However, the stock’s valuation looks stretched. Its Price to Earnings Growth (PEG) ratio of 1.79 is above the industry level of 1.31. The Price to Book (P/B) ratio of 3.18 is also higher than the industry average of 1.98.
Moreover, WellCare Health has been suffering from rising level of its financial leverage since 2013. The company’s long-term debt increased 11% to $998 million in 2016 continuing the trend. This in turn increases the company’s interest expenses that again limit the bottom-line growth
The company’s cost management has also been disappointing. Since 2013, growing expenses have been putting pressure on the company’s margin. In 2016, total expense grew 1.1% to $13.7 billion, primarily due to a rise in medical benefit expenses and interest expenses.
The surprise victory of Donald Trump as the 45th U.S. President and the subsequent introduction of the American Healthcare Act (AHCA) replacing Obamacare has raised concerns for companies from this space and Wellcare Health is no exception. Obamacare had substantially boosted membership growth for health insurers and hence, its replacement by the new Republican health draft will lead to the discontinuation of the Affordable Care Act’s Medicaid expansion. This is expected to increase the number of uninsured Americans, plunging the entire medical sector into uncertainty.
Zacks Rank and Stocks to Consider
WellCare carries a Zacks Rank #3 (Hold).
Some better-ranked stocks from the medical sector include HCA Holdings, Inc. (HCA - Free Report) , Inogen Inc. (INGN - Free Report) and Avinger, Inc. (AVGR - Free Report) . While Inogen sports a Zacks Rank #1 (Strong Buy), the other two companies hold a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
HCA Holdings delivered positive surprises in the trailing four quarters with an average beat of 10.16%.
Inogen posted positive surprises in three of the last four quarters with an average positive surprise of 49.08%.
Avinger delivered positive surprises in two of the last four quarters with an average beat of 4.35%.
5 Trades Could Profit "Big-League" from Trump Policies
If the stocks above spark your interest, wait until you look into companies primed to make substantial gains from Washington's changing course.
Today Zacks reveals 5 tickers that could benefit from new trends like streamlined drug approvals, tariffs, lower taxes, higher interest rates, and spending surges in defense and infrastructure. See these buy recommendations now >>