Why Is WellCare (WCG) Down 7.3% Since Last Earnings Report?

A month has gone by since the last earnings report for WellCare Health Plans (WCG). Shares have lost about 7.3% 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 the most recent earnings report in order to get a better handle on the important drivers.

WellCare Health Q2 Earnings & Revenues Beat, Rise Y/Y

WellCare Healthsecond-quarter 2019 adjusted operating earnings of $4.31 per share, beating the Zacks Consensus Estimate by 5.1% on the back of solid revenues and improved membership. Also, the bottom line improved nearly 17% year over year.

Further, total revenues of the company came in at $7 billion, surpassing the Zacks Consensus Estimate by 6%. Moreover, the top line soared 51.1% year over year. This was mainly driven by the company’s 2018 purchase of Meridian and organic growth in all business lines. However, the same was offset to some extent due to the 2019 ACA Health Insurer Fee (HIF) moratorium.

The adjusted selling, general & administrative (SG&A) expense ratio was 6.8% in the reported quarter, down from 8.1% in the year-ago period. This improvement was supported by the company’s operating leverage.

Q2 Segment Results

Medicaid Health Plans

As of Jun 30, 2019, membership surged 45.5% to 4.1 million. This upside was driven by the acquisition of Meridian and net organic growth.

Adjusted Medicaid Health Plans premium revenues were $4.7 billion, up 64.1% year over year owing to the Meridian buyout and solid net organic growth, which include higher membership in Florida and Arizona Medical health plans.

Adjusted Medicaid Health Plans’ Medical Benefit Ratio (MBR) was 91.3% compared with 88% in the year-ago period, attributable to the Meridian buyout — mainly the Illinois health plan and net organic growth. However, the same was offset by the company’s operational execution to some extent.

Medicare Health Plans

As of Jun 30, 2019, Medicare Health Plans membership was 0.5 million, up 9.8% year over year, driven by the integration of Meridian and continued organic growth.

Medicare Health Plans revenues of $1.9 billion increased 21.1% year over year. This was primarily aided by the company's Meridian buyout as well as organic growth.

MBR was 82.5% compared with 82.9% in the prior-year quarter. The main reason behind this year-over-year contraction is the 2019 bid positioning and consistent operational excellence.

Medicare PDP

Medicare PDP membership was approximately 1.6 million as of Jun 30, 2019, up 56.1% year over year, attributable to organic growth via the newly-enhanced product offering this year.

Premium revenues were $259.3 million, up 29.7% year over year. This can be attributed to the company's organic membership improvement through product offering in 2019.

MBR was 81.2% compared with 72.7% in the year-earlier quarter, attributable to the company’s 2018 bid strategy and the steady operational efficiency.

Financial Update

As of Jun 30, 2019, unregulated cash and investments were $249.4 million, down 52% year over year.

Net flow from operating activities was $536.5 million, up 62% from the year-ago figure of $330.9 million, courtesy of the timing of pharmacy rebate payments and better earnings in the quarter under review.

Days in claims payable (DCP) were 48.8 for the second quarter of 2019 compared with 55.2 days in the comparable quarter last year.

Guidance

The company is not providing any updated outlook due to its pending merger with Centene (NYSE:CNC).

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

VGM Scores

Currently, WellCare has a great Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision looks promising. Notably, WellCare has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.