It has been about a month since the last earnings report for WellCare Health Plans (WCG - Free Report) . Shares have lost about 8.8% 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’s Q3 Earnings Beat Estimates, Down Y/Y
WellCare Health delivered third-quarter 2018 adjusted operating earnings of $3.33 per share, beating the Zacks Consensus Estimate of $3.08 by 8.1% backed by the Meridian buyout and membership growth. However, the bottom line dropped 18.4% year over year.
Total revenues of the company totaled $5 billion, in line with the Zacks Consensus Estimate. But the top line improved 14.9% year over year. This was mainly backed by the company’s purchase of Meridian, addition of members owing to the Illinois Medicaid program as well as organic growth in Medicare Health Plans segment along with the reinstatement of the ACA Health Insurer Fee for 2018.
The adjusted selling, general & administrative (SG&A) expense ratio was 8.5% in the reported quarter, up from 8.3% in the year-ago period.
Q3 Segment Results
Medicaid Health Plans
As of Sep 30, 2018, membership soared 43.7% to 3.9 million. This upside was driven by the acquisition of Meridian and net organic growth.
Adjusted Medicaid Health Plans premium revenues were $3.1 billion, up 15.9% year over year on Meridian buyout and higher membership from the statewide expansion of the Illinois Medicaid program.
Adjusted Medicaid Health Plans’ Medical Benefit Ratio (MBR) was 87.8% compared with 86.9% in the year-ago period, attributable to Meridian buyout and incremental retroactive revenues from Florida. However, the same was offset by the company’s operational execution to some extent.
Medicare Health Plans
As of Sep 30, 2018, Medicare Health Plans membership was 0.5 million, up 10.6% year over year, driven by the integration of Meridian and continued organic growth.
Medicare Health Plans revenues of $1.6 billion increased 7.9% year over year. This was primarily aided by the company's Meridian purchase as well as organic growth.
MBR was 84.8% compared with 85.7% in the prior-year quarter. The main reason behind this year-over-year improvement was the company’s 2018 bid strategy as well as its operational performance.
Medicare PDP membership was approximately 1.1 million as of Sep 30, 2018, down 7.4% year over year due to bid positioning.
Premium revenues were $182.3 million, decreasing 9.7% year over year. This can be attributed to the company's 2018 bid positioning.
MBR was 88.7% compared with 96.9% in the year-earlier quarter, attributable to the company’s 2018 bid strategy as well as the continued operational execution.
As of Sep 30, 2018, unregulated cash and investments were $462.6 million, down 20.5% year over year.
Net flow from operating activities was $578.6 million, down from the year-ago figure of $910.6 million. This is mainly due to the advanced receipt of October CMS Medicare premiums in September 2017 and the payment of ACA HIF in September 2018.
Days in claims payable (DCP) were 54.2 for the third quarter of 2018 compared with 51 days in the comparable quarter last year.
Guidance for 2018
Based on a strong third-quarter performance, WellCare Health raised its full-year adjusted EPS view to a range of $10.90-$11, up from the earlier projection of $10.70-$10.90 per share.
Total adjusted premium revenues are now expected in the band of $19.6-$19.9 billion, up from the previous forecast of $17.9-$18.4 billion.
Investment & other income is anticipated to be $101-$105 million, up from $90-$94 million.
Adjusted SG&A ratio is likely to be between 8.35% and 8.45%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -6.08% due to these changes.
Currently, WellCare has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, WellCare has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.