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What's Behind WellCare Health Plans' Q3 Earnings Home Run

By Keith Speights - Oct 30, 2019 at 1:14PM

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The health insurer fired on all cylinders in Q3 thanks to a big acquisition and solid organic growth.

WellCare Health Plans (WCG) has provided plenty of excitement to investors in 2019 as its shares have swung up and down throughout the year. The stock has been steadily marching upward in recent weeks in a solid rebound. 

That march gained extra oomph after WellCare announced its third-quarter results before the market opened on Wednesday. Here are the highlights from the company's Q3 update.

Elderly couple sitting on couch together, speaking with a healthcare provider wearing blue scrubs and holding a clipboard with paper on it

Image source: Getty Images.

By the numbers

WellCare reported revenue in the third quarter of $7.1 billion, a 41% year-over-year jump. Analysts estimated that the company's revenue for the third quarter would come in at $6.79 billion.

The company announced net income of $241 million, or $4.74 per share, in the third quarter based on generally accepted accounting principles (GAAP). This represented a significant improvement from the GAAP earnings of $130.6 million, or $2.70 per share, reported in the same quarter of 2018. 

WellCare posted adjusted net income of $279.8 million, or $5.50 per share, compared to $161.2 million, or $3.33 per share, in the prior-year period. This blew away the average analysts' earnings estimate of $3.82 per share.

Behind the numbers

Much of WellCare's impressive revenue growth in Q3 stemmed from its 2018 acquisition of Meridian. However, the company also delivered net organic growth in all its segments.

WellCare's Medicaid health plans segment's revenue soared 51% year over year to $4.9 billion. Medicare health plans revenue rose by 16.4% to $1.8 billion in the third quarter. Both segments' growth stemmed from organic growth and the Meridian acquisition.

Revenue from the company's Medicare prescription drug program (PDP) segment also jumped 32% to $241.2 million. WellCare attributed this growth primarily to "a new enhanced product offering in 2019."

WellCare's operating expenses increased significantly, rising 41% year over year mainly due to the addition of Meridian. However, the company benefited from a lower income tax expense in the third quarter. 

Looking ahead

The big thing to look forward to with WellCare is its pending merger with Centene. Because of this impending deal, WellCare is no longer providing updates to its financial guidance.

However, investing in healthcare stocks can mean twists and turns. The American Hospital Association is opposing Centene's acquisition of WellCare and has urged the U.S. Department of Justice (DOJ) to "fully investigate" the proposed transaction. While it seems likely that the merger will go through, it's not out of the question that the DOJ could derail the deal.

Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

WellCare Health Plans, Inc. Stock Quote
WellCare Health Plans, Inc.
WCG
Centene Corporation Stock Quote
Centene Corporation
CNC
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