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WellCare Health's (WCG) Buyout to Expand Medicare Business

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WellCare Health Plans Inc. recently agreed to buy the entire stand alone Medicare Part D business from Aetna Inc. .

Aetna is divesting this business in order to appease regulating authorities in the context of gaining a nod for its pending merger with CVS Health Corp. (CVS - Free Report) . Since CVS Health and Aetna have Medicare as an overlapping entity, it becomes necessary to sell this business for securing an approval in relation with the deal from the Department of Justice. Regulators often are critical of merger deals, which have an overlapping business since such a business combination dilutes effective competition by concentrating the market share in the hands of the consolidated entity.

While this is one of the mandatory steps for Aetna to strike its deal successfully, it presents a gain for WellCare Health, which is seeking growth opportunities to expand its market share in the fast growing Medicare market. WellCare Health would add nearly 2.2 million of its Medicare members via this deal with Aetna.

The deal, contingent on the closing of the merger between Aetna and CVS Health, will see light by this year-end and therefore, will not be accretive to WellCare Health’s 2018 earnings.

Year to date, the stock of WellCare Heath has rallied 59%, outperforming the industry’s increase of 22%.


WellCare Health has been making concerted efforts to boost its Government business, which includes Medicare and Medicaid. In this vein, it will acquire Meridian for $2.5 billion, which should increase the company’s revenues by $4.3 billion upon the completion of the transaction. The deal would add 1.1 million Medicaid and 27000 Medicare members and will be closed by the end of 2018.

Another remarkable deal inked by the company was last year’s acquisition of Universal American Corp., which raised WellCare Health's Medicare Advantage membership by one-third and strengthened its presence in Texas and New York.

Apart from the above purchases, the company has lapped up a number of Medicaid contracts in recent months, which should aid its earnings from the Government business.

WellCare Health sports a Zacks Rank #1 (Strong Buy).  You can see the complete list of today’s Zacks #1 Rank stocks here.

Another stock worth mentioning in the same soace is UnietdHealth Group Inc. (UNH - Free Report) . The stock carries a Zacks Rank #2 (Buy) and has surpassed estimates in each of the four reported quarters with an average positive surprise of 3.71%.

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