On July 31 last year, when the stock was trading at $48 per share, Goldman Sachs downgraded managed-care provider WellCare Health Plans (NYSE:WCG) to a neutral rating from a buy. On Feb. 16, it downgraded it again -- this time to a sell from a neutral as the stock was trading at $79. During that span, Wachovia and Morgan Stanley also downgraded the stock, and just last week Jeffries & Co. downgraded it, too.
Jeffries & Co. showed the entire industry little mercy, downgrading fellow providers Molina Healthcare (NYSE:MOH), Centene (NYSE:CNC), and Amerigroup (NYSE:AGP). But after reporting the results of a lights-out Q1 Monday, WellCare now trades at $89, up more than 80% since Goldman's initial downgrade.
I hope that the shareholders of WellCare didn't put too much weight into these downgrades: clearly, they weren't warranted. The company reported a 49% increase in net income over the year-ago quarter on a 70% increase in total revenues. Management also reported that membership is up 47% year over year. If analysts have legitimate concerns about the stock's valuation, that's one thing. Just merely guessing that it's due to go down is quite another.
Given the exponential growth we have seen from WellCare in recent quarters, it isn't surprising that management finds itself constantly increasing full-year guidance. Today, the company raised its full-year EPS estimate by another 13% from what it had issued after its Q4.
My most recent concern with this stock was that three of the company's top executives -- its CEO, chief financial officer, and senior vice president -- sold shares at the end of April. Regardless of the reasons for them, it was a bit disconcerting to see the sales come as shares traded within a few dollars of the recent 52-week high of $94.55 and then watch as the stock fell more than 12% in the ensuing days. I'm not saying that one is the proximate cause of the other, because the price drop happened gradually, and certainly could be attributed in part to the Jeffries & Co. downgrade. It just didn't signal a vote of confidence for the stock.
For now, the insider transactions and downgrades appear to be of little concern. The Q1 earnings have kicked some life back into WellCare's shares -- they had rallied to more than $89 per share today, up 7.5%. The company's Medicare Advantage membership rolls have grown 46% year to date. Revenues have also been boosted by strong membership growth in the Georgia Medicaid plan and a Medicare prescription drug plan. Given recent trends and the company's outlook, I believe shareholders can expect an equally strong Q2.
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Fool contributor Billy Fisher does not own shares of any of the companies mentioned.
