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WellCare Buys Arcadian's Assets

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Last week, WellCare Health Plans Inc. (WCG - Free Report) revealed that it has concluded the purchase of some assets of Arcadian Health Plan Inc.'s Desert Canyon Community Care Medicare Advantage plans in Arizona from Humana Inc. (HUM - Free Report) . The financial terms of the deal, which was announced in July last year, were not disclosed.

Humana agreed to the divestiture in order to meet the conditions set by the government for completing its acquisition of Arcadian Health.

The deal is a part of WellCare’s efforts to expand its operations in Arizona. The company expects the purchase to boost its Medicare Advantage Prescription Drug Plan business in the state.

As per the agreement, the members of Desert Canyon living in the Mohave and Yavapai counties have become a part of WellCare with effect from January 1, 2013. This implies a membership boost of about 4,000 for WellCare, according to the company’s estimate of Desert Canyon’s membership in January 2013.

Apart from increasing its customer base, the acquisition is expected to aid the company’s net income. WellCare is striving to provide good quality health care solutions at a reasonable cost to Desert Canyon’s members.

WellCare and Desert Canyon are working together to guarantee a smooth switch for the members. At the time of announcing the agreement, WellCare had assured that members availing the Desert Canyon Medicare Advantage plan will continue to enjoy the same benefits and coverage as they enjoyed in 2012. In case of any changes in the plans and benefits for 2013, the members will be informed.

WellCare often acquires companies to expand its business. In November 2012, the company completed the acquisition of Easy Choice Health Plan Inc. Earlier, in October last year, the company announced an agreement to acquire the Medicaid business of UnitedHealthcare in the South Carolina region from UnitedHealth Group Incorporated (UNH - Free Report) .

Currently, the Zacks Consensus Estimate for WellCare’s fourth-quarter earnings is $1.34 per share, down 38% over the fourth quarter of 2011. For 2012, the Zacks Consensus Estimate stands at $4.98 per share, down 26% over 2011. The Zacks Consensus Estimate lies within WellCare’s guidance range of $4.90–$5.05 for its 2012 earnings per share. The company had reduced its earnings guidance from $5.25–$5.45 per share in October.

Both WellCare and Humana currently carry a Zacks #3 Rank (Hold). We maintain a long-term Neutral recommendation on both WellCare and Humana.

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