Why WellCare Health Plans Inc. Shares Look Sickly Today

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 WellCare Health Plans  are trading nearly 10% lower this afternoon as investors react to the company's underwhelming earnings report, which included warnings of a significant impact expected from new Obamacare costs in 2014.

So what: WellCare's quarterly revenue rose 23% year over year to $2.44 billion, slightly ahead of Wall Street's $2.42 billion consensus. However, the company's adjusted fourth-quarter earnings of $1.09 per share missed the $1.15 forecast, and generally accepted accounting principles net income of $0.97 per share was weaker than the year-ago quarter's $1.11 in GAAP earnings per share.


Worse is the news that WellCare now expects anywhere from $1.17 to $1.26 per share in new costs as a result of new insurer fees mandated by the Affordable Care Act, which in the aggregate will cost the company between $125 million and $135 million in 2014. Other expenses will weigh down WellCare's bottom line by as much as $1.19 per share. In the final tally, the company's full-year EPS guidance was dropped to a range of $3.75 to $4.05, more than $1 beneath Wall Street's $5.08 estimate for 2014.

Now what: The upper edge of WellCare's new EPS guidance pegs its forward P/E at roughly 13.8 after the drop, which is about in line with the company's present valuation. That's cheap by most standards, but keep in mind that it also represents essentially no bottom-line growth for 2014. Without a dividend to tide patient investors over, it's hard to identify any good reason to stick around instead of hunting elsewhere for gains.

You won't have to hunt for very long...
It's no secret that investors tend to be impatient with the market, but the best investment strategy is to buy shares in solid businesses and keep them for the long term. In the special free report "3 Stocks That Will Help You Retire Rich," The Motley Fool shares investment ideas and strategies that could help you build wealth for years to come. Click here to grab your free copy today.

The article Why WellCare Health Plans Inc. Shares Look Sickly Today originally appeared on Fool.com.

Alex Planes has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.


Increase your money and finance knowledge from home

Finding Stock Ideas

Learn to do your research and find investments.

View Course »

Bonds for Beginners

Learn about fixed income investments.

View Course »

Add a Comment

*0 / 3000 Character Maximum