Why WellCare Health Plans, Inc. Shares Fell

Is this meaningful? Or just another movement?

Brian D. Pacampara, CFA
Brian D. Pacampara, CFA
Jul 25, 2014 at 2:52PM
Health Care

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of health insurer WellCare Health Plans, (NYSE:WCG) plummeted 20% today after its quarterly results and outlook disappointed Wall Street.

So what: WellCare shares have rallied nicely in recent months on signs of increasing profitability, but a wide Q2 miss -- adjusted loss of $0.07 per share versus the consensus of a $0.90 profit -- coupled with downbeat guidance is causing a sizable reaction. While premiums revenue rose jumped 35% year-over-year to $3.1 billion, heavy charges related to its 2012 acquisition of Easy Choice Health Plan and high costs in Florida are prompting investors to jump out of WellCare on the risk of more bottom line pressure ahead.

Now what: Management slashed its 2014 adjusted profit outlook to $2.20-$2.50 per share from $4.40-$4.75. "In assessing our results and outlook, we believe the focus should be on three issues," said Chairman and CEO Dave Gallitano. "The first issue is the new population and utilization of services for the Florida Medicaid Managed Medical Assistance (MMA) program start-up. The second issue is claims reserve development and an increase in claims reserves to reflect our current estimate. The third issue is this quarter's impairment and other charges, primarily related to Easy Choice's continued poor performance." Given all the seemingly company-specific issues surrounding WellCare at the moment, conservative Fools would probably do well to maintain their distance.