Serial Acquirer WellCare Health Plans, Inc. (WCG) Set For Further Growth

One of the cheapest stocks in our Large Cap 1000 – Deep Value Stock Screener is, WellCare Health Plans, Inc. (NYSE:WCG).

WellCare Health Plans, Inc. (WellCare) focuses exclusively on government-sponsored managed care services, primarily through Medicaid, Medicare Advantage and Medicare Prescription Drug Plans to families, children, seniors and individuals with complex medical needs.

As of September 30, 2016, the company served approximately 3.8 million members. In the nine months ending September 30, 2016, WellCare operated Medicaid health plans in Florida, Georgia, Hawaii, Illinois, Kentucky, Missouri, New Jersey, New York and South Carolina. At the same time WellCare operated MA coordinated care plans in Arkansas, California, Connecticut, Florida, Georgia, Hawaii, Illinois, Kentucky, Louisiana, Mississippi, New Jersey, New York, South Carolina, Tennessee and Texas, as well as stand-alone Medicare prescription drug plans in all 50 states and the District of Columbia.

If we take a look at the company’s share price history (below) over the past twelve months we can see that the stock has risen 75%, from $78.12 on January 5, 2016 to $136.63, just 3.6% off its 52 week high of $141.88 in December 2016.

(Source, Google Finance)

While the company’s share price has risen 75% over the past twelve months I believe the company still has more growth to come.

Growth Through Acquisition

There’s no question that WellCare has had a twelve months. Looking at its latest quarterly results, Q3 2016, the company had revenue of $3.58 billion, up 5% from $3.44 billion in Q3 2015, while net income increased 91% to $69 million from $36 million in Q3 2015.

Where I see continued growth is in the company’s acquisitions of Phoenix Health Plan, Universal American, Care1st and Advicare Corp together with its solid track record of contract renewals. WellCare is a company that generates significant amounts of free cash-flow which means it can search and pay for accretive acquisitions that will help to grow its business. The company also has a significant amount of cash on its balance sheet and relatively low debt.

Recent Acquisitions

In terms of its recent acquisitions:

– This month WellCare announced the completed acquisition of Care1st Health Plan of Arizona. The $157.5 million deal marks WellCare’s entrance into the Arizona Medicaid managed-care market. Care1st Arizona was a subsidiary of Care1st Health Plan, a California-based insurer that Blue Shield of California bought for $1.25 billion last October. Care1st Arizona provides Medicaid coverage to 112,000 people in the state’s two largest counties and also has a small Medicare Advantage special needs plan that covers 2,000 people. Projections indicate Care1st Arizona is expected to add about $400 million of premium revenue to WellCare.

– In December, WellCare announced that had signed a definitive agreement to acquire certain assets, including Medicaid membership and certain provider contracts, from Phoenix Health Plan (PHP), a wholly owned managed care subsidiary of Tenet Healthcare. PHP provides health benefits primarily to more than 50,000 Medicaid beneficiaries as of December 1, 2016 in Maricopa County, Arizona, the state’s largest geographic service area. The transaction is expected to close by the second quarter of 2017, pending regulatory approvals, and is expected to be funded with available cash on hand.

– In November, WellCare announced that it had entered into a definitive agreement to acquire Universal American in an all cash transaction valued at $10.00 per share of common stock. The acquisition is expected to add approximately 65,000 Medicare Advantage (MA) members in a 4.5-Star plan in Houston–Beaumont, Texas and approximately 14,000 MA members in a 4.0-Star plan in the Northeast, primarily in New York, to the company’s Medicare Health Plans membership. In addition, Universal American partners with Accountable Care Organizations (ACO) in 11 states, six of which are WellCare Medicare Advantage markets.

– In June WellCare announced that it had completed the acquisition of certain assets of Advicare Corp.’s Medicaid business, which includes the transfer of approximately 30,000 members to WellCare of South Carolina. The financial terms of the transaction were not disclosed.

WellCare clearly has a focus on growth through acquisition, for this to be successful the company needs to ensure it’s not too aggressive with its M&A strategy and pays the right price for its acquisitions. History is littered with companies that have acted too aggressively with their M&A strategy and/or paid too much for their acquisitions.