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WellCare Health's (WCG) Q3 Earnings Beat Estimates, Up Y/Y

Zacks Equity Research
Updated

WellCare Health Plans, Inc.WCG reported third-quarter 2017 adjusted operating earnings of $4.08 per share that outpaced the Zacks Consensus Estimate of $1.90. Earnings per share also increased significantly from $1.63 in the previous-year quarter. The year-over-year improvement was primarily backed by strong results across its all three business lines.

Operational Update

Adjusted total premium revenues of $4.4 billion for the third quarter increased 25.2% year over year due to premium revenue and membership growth across its three segments driven by organic growth and acquisitions. Revenues, however, missed the Zacks Consensus Estimate by 0.2%.

Adjusted selling, general & administrative (SG&A) expenses were $364.8 million, up 35.7% year over year. The adjusted SG&A expense ratio was 8.4%, up 70 basis points (bps) from the year-ago quarter. The deterioration stemmed primarily from the company's acquisitions of Universal American and Care1st Arizona as well as staffing and infrastructure costs.

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Quarterly Segment Update

Medicaid Health Plans:

The segment’s membership increased 12% to 2.7 million from the last-year quarter. The rise was driven by the addition of the company's new Medicaid businesses in Arizona and Nebraska and new members from the statewide expansion of the Missouri Medicaid program.

Adjusted Medicaid Health Plans premium revenues were $2.7 billion, up 14.7% year over year, primarily due to membership growth.

Adjusted Medicaid Health Plans’ Medical Benefit Ratio (MBR) was 86.9%, down 400 bps from the last-year quarter. The improvement came on the back of continued operational execution and the effect of Florida Medicaid retroactive premium revenues recognized in the reported quarter.

Medicare Health Plans Segment Results:

Medicare Health Plans membership was 0.492 million, up 45.6% year over year due to the company's acquisition of Universal American, 2017 bid positioning and continued execution on sales and retention initiatives.

Medicare Health Plans premium revenues increased 52.9% on a year-over-year basis to $1.5 billion. This was primarily due to the company's acquisition of Universal American and year-over-year organic membership growth.

The segment’s MBR was 85.7%, up 210 bps due to the buyout of Universal American, the company's 2017 bid strategy and increased investments in quality initiatives.

Medicare Prescription Drug Plans (PDP) Segment Results

Medicare PDP membership was 1.1 million, increasing 12.7% year over year primarily as a result of the company's 2017 bid positioning. The segment’s MBR was 70.7%, up 1190 bps from the last-year quarter due to the same reason.

Medicare PDP premium revenues were $201.9 million, up 14.8% year over year due to membership growth.

WellCare Health Plans, Inc. Price, Consensus and EPS Surprise

WellCare Health Plans, Inc. Price, Consensus and EPS Surprise | WellCare Health Plans, Inc. Quote

Financial Update

Net cash provided by operating activities was $910.6 million, down 17.2% year over year.

As of Sep 30, 2017, unregulated cash and investments were $582.2 million, down 34% year over year.

As of Sep 30, 2017, long-term debt of $1.2 billion increased 18.4% from year-end 2016.

Guidance for 2017 Raised

The company expects adjusted earnings per diluted share in the range of $8.25 to $8.40, up from previous guidance of $6.75-$6.95.

Total adjusted premium revenues are expected in the band of $16.675-$16.925 billion, up from its previously guided range of $16.45-$16.85 billion.

Investment & other income is anticipated to be $56 million to $62 million, raised from the previous guidance of $40-$45 million.

Adjusted SG&A ratio is expected to be between 8.3% and 8.4%, up from the previous guided range of 8.0% to 8.25%.

Zacks Rank and Performance of Other Insurers

WellCare presently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Among the other firms in the medical sector that have reported third-quarter earnings so far, the bottom line at Centene Corp. CNC, Aetna Inc AET and UnitedHealth Group Inc. UNH beat their respective Zacks Consensus Estimate.

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