WellCare to Buy Select Humana Assets

In an effort to increase the reach of its operations in Arizona, WellCare Health Plans, Inc. ( WCG - Snapshot Report ) entered into a definitive agreement with Humana Inc. ( HUM - Analyst Report ) to buy some of the assets of Arcadian Health Plan, Inc.'s Desert Canyon Community Care Medicare Advantage.

If approved by the regulatory bodies, the deal is expected to complete by the end of this year. No other terms of the deal were disclosed.

Per the agreement, starting January 1, 2013, members of Desert Canyon in Mohave and Yavapai will become a part of WellCare in the Arizona region. With this acquisition, the company will cater to a larger section of people as it is committed to providing cost-effective medical assistance to the people of the Arizona region.

With Arizona in its list, WellCare will be extending its services to a dozen states now and serve more than 150,000 Medicare Advantage members and 10,000 Medicare Prescription Drug Plan members.

The announcement comes on the heels of the divestiture initiative undertaken by Humana in order to meet governmental requirements for completing Arcadian Health’s acquisition.

The company also announced that members availing Desert Canyon Medicare Advantage plan will continue to enjoy the same benefits and coverage as earlier in 2012. In case of any changes in the plans and benefits for 2013, the members will be informed.

WellCare has a sound financial position with an increasing cash and cash equivalent balance and comparatively fewer debt obligations. Such strong financials should cushion the company's acquisition procedure. It can either deploy its excess cash or opt for debt financing. Also, It has a decent interest coverage ratio that is way ahead of the sector average.

The recent acquisition is expected to aid WellCare’s net income and help the company in achieving adjusted net income of $5.20 - $5.40 per share in 2012. The acquisition will also increase its customer base that will allow the company to achieve its revenue guidance of $7.0 - $7.1 billion in 2012.

WellCare is scheduled to release its second quarter results before the bell on August 3. The Zacks Consensus Estimate for earnings for the quarter is currently pegged at $1.23 cents per share, representing an estimated year-over-year decrease of 30.5%.

Humana is scheduled to release its second quarter results before the bell on August 6. The Zacks Consensus Estimate for earnings for the quarter is currently pegged at $2.22 cents per share, representing an estimated year-over-year decrease of 11.2%.

WellCare currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Humana currently retains a Zacks #4 Rank, which translates into a short-term Sell rating.