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WellCare to Buy Easy Choice

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In a concerted effort to expand its footprint in the western region of the United States, WellCare Health Plans, Inc. (WCG - Free Report) penned a definitive agreement to buy Easy Choice Health Plan, Inc. The deal, which is subject to regulatory clearance and other closing conditions, is expected to consummate in the fourth quarter this year. No other financial terms were disclosed.

The acquisition will help bolster WellCare’s net income in the coming year. Following the announcement, the shares of the company gained 3.4% (or $1.96) over Thursday to close at $59.98 yesterday.

With the acquisition of Easy Choice, WellCare will simultaneously take over around 34,000 Medicare Advantage plan members in Los Angeles, Orange, Riverside and San Bernardino Counties in Southern California, including approximately 12,000 of its Medicare Advantage dual special needs plan (D-SNP) members in Los Angeles County.

Moreover, Easy Choice is scheduled to expand its service area to 11 California counties, including the San Diego area, as well as five counties in northern California in 2013. Also, it plans to offer Medicare Advantage chronic condition special needs plans in five of its 11 county service areas in the same year.

By 2013, WellCare expects to expand its Medicare Advantage service area to more than 200 counties in 14 states, and offer D-SNPs in most of these counties.

WellCare looks well poised for the upcoming quarters. With its second quarter earnings release, it raised its guidance for 2012. The company now expects its premium revenue to be $7.1 billion, increasing from its previous outlook which ranged between an approximate of $7.0 and $7.1 billion. We believe that such acquisitions will help it attain the same.

Also, its closest competitor, Coventry Health Care Inc. recently signed a definitive agreement to be acquired by U.S. health insurer, Aetna Inc. (AET - Free Report) for $7.3 billion. The deal is likely to be completed by mid 2013, which implies that with fewer competitors, WellCare will enjoy a dominant position in the market going forward.

Currently, the company carries a Zacks #3 Rank, implying a short-term Hold rating.

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