WellCare Health (WCG) 2018 Guidance: What's In The Cards?

WellCare Health Plans, Inc. (NYSE:WCG) has issued guidance for 2018 and kept it intact for 2017. The company has retained its practice of providing outlook conservatively and beating estimates to surprise investors.

The company’s interesting surprise history shows that it has surpassed estimates in 21 of 28 reported quarters in the past.

What the Recent Guidance Includes

Bottom Line Higher Year Over Year: For 2018, the company expects its adjusted earnings per share (EPS) at $8.40-$8.65, reflecting a year-over-year increase of 2.4%. The bottom-line growth will be driven by accretion from the Universal American acquisition, Medicare Advantage organic growth, maturation of new Medicaid business, PBM contract renegotiation and selling, general and administrative cost leverage. However, these will be partially offset by the ACA industry fee reinstatement and a decrease in Florida Medicaid rate. The Zacks Consensus Estimate calls for EPS of $8.63.

Stronger Top Line: Adjusted premium revenues are expected in the range of $17.95 billion- $18.475 billion, representing an 8.4% rise year over year. This upside will be backed by organic growth across all three businesses of Medicaid, Medicare Advantage and MA Part-D. The acquisition of Universal American Corp. will further accrue to the top line.

Improvement in Medical Costs: The company also projected an improvement in MLR (Medical Loss Ratio) across all three business lines on the back of a continued momentum from clinical and operational initiatives and the HIPF reinstatement.

Though earnings will be supported by the above factors, the following might hurt the bottom line.

Rise in Interest Expenses: The health insurer estimates interest expenses of $69-$72 million for 2018, comparing unfavorably with its 2017 forecast of $68-$70 million.

Other Charges: Medicaid premium taxes of $120-$125 million plus $51-$56 million of acquisition related amortization expenses.

Higher Effective Tax Rate: Effective tax rate for 2018 is predicted in the band of 51-53%, up from 32.5-33% for 2017. However, we consider this as a conservative outlook and expect the tax rate to benefit from the corporate tax reform.

Share Price Performance

In the last 12 months, the stock has gained 41%, in line with the industry’s growth.

Our Take

All in all, the issued view upholds the company’s strong fundamentals and its ability to perform in an industry confronting stiff competition, rising medical costs and high regulatory uncertainty.

Recently other health insurers namely, UnitedHealth Group Inc. (NYSE:UNH) and Centene Corp. (NYSE:CNC) came out with their respective earnings guidance for 2018.

UnitedHealth expects adjusted EPS of $10.55-$10.85, up 7% year over year calculated at the midpoint.

Centene estimates adjusted EPS in the range of $5.47-$5.87. This new guidance is also 14% higher than the midpoint of the range projected for 2017 adjusted EPS.

WellCare Health sports a Zacks Rank #1 (Strong Buy). Another top-ranked stock Magellan Health, Inc. (NASDAQ:MGLN) also boasts the same bullish Zacks Rank as WellCare Health’s. You can see the complete list of today’s Zacks #1 Rank stocks here.

Magellan Health beat estimates in three of the four reported quarters with an average positive surprise of 0.9%.

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