WellCare Health Plans, Inc. (NYSE:WCG)

CAPS Rating: 3 out of 5

The Company provides managed care services exclusively to government-sponsored healthcare programs, focusing on Medicaid and Medicare.

Recs

5
Player Avatar ValueGuru (< 20) Submitted: 6/2/2008 9:49:23 AM : Underperform Start Price: $54.46 WCG Score: +24.72

I am amazed at everything I am reading. I bought Wellcare at its near low of $25 a share and sold at $49 (a price I was delighted with!). Since then thuogh the industry has had a dip, that is based on more than just rumour - the fundamentals behind medical costs are very real. We know little about Wellcare except for:
- the stock has benefitted from rumours of a takeover. However at a P/E premium to the industry's bigger players and an uncertain future, I doubt very much that the big players of UNH and HUM will entertain a takeover right now.
- the company has axed 5% of its workforce and announced a Q1 loss is likely. True some of that is related to legal fees but most of it (as evidenced by the job chops) is the result of fundamentals. We do not yet know 2007 EPS but I will bet in the current environment 2008 EPS will be lower than 2007's.
- Based on the above there is a large PE premium to which the stock is trading against its peers. And in case everyone else forgot- THE INVESTIGATION IS ONGOING - and close to an election!!!! You do not spend $32m on legal fees if the likely outcome is a $100m fine! I think this is big! I would also add the job cuts are not at the best time as having disgruntled former sales staff provide evidence will be of no help.

WHEN THIS DROPS, IT WILL DROP BIG!!!

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