WCG

[yukiii]

Ok, I couldn't find anything worth buying in healthcare but did find IDSA in waste management

Reported preliminary results for Q1 of $0.22 vs $0.12 in same quarter last year. Could make close to $0.90 this year.

[nullzero]

ROCM would of been a good pick about 15 PPS... It now stands @ 29

[ravenquork]

Another article in the Tampa Tribune regarding WCG

WellCare's Money Transfer Investigated By State CFO
Skip directly to the full story.

By CAROL GENTRY The Tampa Tribune

Published: Apr 27, 2007

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TAMPA - Florida's chief financial officer, Alex Sink, is reviewing ties between WellCare Health Plans' Medicaid HMOs in Florida and a WellCare subsidiary in the Cayman Islands, her office confirmed on Thursday.

Sink's review began after the relationship among the companies was described April 11 in The Tampa Tribune, said her spokeswoman, Nina Banister. Sink released a written statement to the Tribune turning down a request for an interview on the matter until she has time to review the report and allegations.

Marc Ryan, vice president of policy at Tampa-based WellCare, said that when Sink completes her review she will find that there were no overpayments to the affiliate.

"If you look at the Medicaid premiums paid by WellCare Florida to the reinsurer for 2006, the claim recoveries equal the payments," Ryan said.

It is not illegal to use an affiliated reinsurance company, which provides stop-loss coverage. And other insurers have affiliates in the Cayman Islands.

The company submitted the request to start the reinsurance company to the Office of Insurance Regulation after an independent actuary determined the appropriate rates, WellCare's Ryan said.

Actuary Nathan Tan, with the regulatory office, reviewed the request and determined there was nothing wrong with it, spokesman Jonathon Kees said. He said he doesn't know who in the office ultimately signed off on it.

The CFO's review of the WellCare arrangement comes a week after Sink rebuked Insurance Commissioner Kevin McCarty for sponsoring a fundraiser for a friend's campaign, requesting contributions from the insurance industry. McCarty spokesman Bob Lotane, whose wife was the candidate, resigned after disclosures that he had used a state-owned computer to work on the invitation.

McCarty apologized, and Gov. Charlie Crist said this week that he supports the commissioner. Crist said the industry could be trying to darken McCarty's reputation because he is a strong advocate for consumers.

The April 11 Tribune story quoted three Wall Street analysts who said WellCare's Florida HMOs sent far more money than necessary to the unregulated subsidiary, Comprehensive Reinsurance Ltd. The WellCare HMOs sent $73 million and recovered $38 million, a difference of $35 million.

The analysts said that because the shift made no difference in the overall company income, they speculated the move was meant to keep WellCare's margins slim before the Legislature debated the Medicaid managed-care rate increase for next year. The debate is going on now.

Ryan noted that the analysts erred by lumping the Medicaid and Medicare premiums together. Only $19 million of the shift was for Medicaid because the risk for Medicare beneficiaries was much greater. After end-of-year claims came in, the claim recoveries for Medicaid patients equaled $19 million, he said.

The Medicare premiums and recoveries also matched up, he said. The confusion may have arisen because the reinsurer was created in late 2005. "It's a new entity," he said.

In Florida, WellCare is by far the largest Medicaid plan, with more than 450,000 enrolled. Of the $1.7 billion the state paid HMOs last year, WellCare's two plans took in half, almost $850 million.

WellCare operated Medicaid plans in seven states last year, and Florida was its main market. The Florida Medicaid program provided about one-third of the company's total premium revenue, according to WellCare's year-end report to the Securities and Exchange Commission.

Wall Street researchers have been speculating for months over WellCare's astonishing growth in enrollment and stock value. That led three firms to plow through the company's April 1 Florida filings and discuss their conclusions.

All three concluded that the state was overpaying its Medicaid HMOs and warned about political backlash that could adversely affect WellCare, AmeriGroup and other publicly traded companies that have Medicaid contracts in the state.

http://www.tbo.com/news/money/MGBF2Z8XZ0F.html

[yukiii]

Ok, I couldn't find anything worth buying in healthcare but did find IDSA in waste management

Reported preliminary results for Q1 of $0.22 vs $0.12 in same quarter last year. Could make close to $0.90 this year.

IDSA Up 24% today

[David Randolph]

Thanks a lot for that article ravenquork, it partially explains why WCG went down 3.94% on Friday. Now I'm just a bit in the green with this position, and it is the least attractive stock in the Main Portfolio.

I get somewhat worried that this company needs to "hide" its net profit margin or else politicians may cut the reimbursement rates it gets for its services. The company's profitability may grow, but not due to an expansion in net profit margin.

Given this I should probably cut my final net profit margin from 5% to 3.5%, which seems to be the politically "acceptable" net profit margin:



Just a 1.5 percentage point cut in the final net profit margin changes the valuation model results dramatically. This also happens because the stock was just barely attractive. I still think WCG will continue to rise over the long term, but probably not at satisfactory rates for the Main Portfolio.

Since the stock also broke an important ascending trendline in the technical chart, I decide to sell my WCG shares at Monday's open.

[yukiii]

Thanks a lot for that article ravenquork, it partially explains why WCG went down 3.94% on Friday. Now I'm just a bit in the green with this position, and it is the least attractive stock in the Main Portfolio.

I get somewhat worried that this company needs to "hide" its net profit margin or else politicians may cut the reimbursement rates it gets for its services. The company's profitability may grow, but not due to an expansion in net profit margin.

Given this I should probably cut my final net profit margin from 5% to 3.5%, which seems to be the politically "acceptable" net profit margin:



Just a 1.5 percentage point cut in the final net profit margin changes the valuation model results dramatically. This also happens because the stock was just barely attractive. I still think WCG will continue to rise over the long term, but probably not at satisfactory rates for the Main Portfolio.

Since the stock also broke an important ascending trendline in the technical chart, I decide to sell my WCG shares at Monday's open.

The company's internal guidance is superior to your expectations:

And WCG has been beating analysts estimates every quarter:

You can be right, but you can't substantiate your expectations on any trend or public indication. Or can you? Thanks
[/quote]

What happen nothing changed from last week? You said you would hold to $110.

[David Randolph]

What happen nothing changed from last week? You said you would hold to $110.

I said $105, not $110. Essentially three things made me change my mind:

1) Your warning about growth and the fact that the company's own guidance points to just 21% EPS growth in Q1 2007 when compared to Q1 2006. I had 30% growth in my valuation model;

2) The articles ravenquork posted clearly showing WCG depends more on political lobbying than normal market demand/supply forces, and I dislike businesses that depend too much on politics. The fact that political pressure won't let WCG have a fat net profit margin lead me to lower my long term net profit margin forecast from 5% to 3.5% and that made the stock unattractive according to my valuation model;

3) The stock broke down technically, on volume above average.

I change my mind whenever I feel it is appropriate to do so. Hey, sometimes I agree with you and on other times I disagree with you, you can't argue with me on both occasions

[Kublakhan]

If you like volatility, here's your play for the morning.  Earnings and possibly some clarification on the gravity of their situation.

[David Randolph]

WCG looked like a stock widows and orphans should own for the long term (I wonder if elliemae still has it and what she thinks of the current situation), but it seems several politicians were angry at the company's profits. This was actually part of my reasoning for selling the stock:

2) The articles ravenquork posted clearly showing WCG depends more on political lobbying than normal market demand/supply forces, and I dislike businesses that depend too much on politics. The fact that political pressure won't let WCG have a fat net profit margin lead me to lower my long term net profit margin forecast from 5% to 3.5% and that made the stock unattractive according to my valuation model;

The stock is currently trading at 7.2 times 2007 earnings estimates, which incorporates the risk ... well, the risk is total failure and bankruptcy, I guess. The upside is maybe 100%, since after this FBI investigation WCG will always carry a lower than average valuation. It takes a long time to build credibility and confidence among investors and when that's lost ... it may take many years to regain it.

So, considering the upside potential is about a double and the risk is a complete loss of capital, I find WCG unattractive at this point. But will keep an eye on developments.

[David Randolph]

The Fed's raid killed WCG for good.

Oppenheimer put out a 20 pages research piece for WCG yesterday.

Here are the conclusions:

Valuation

Our 12- to 18-month price target is $60.

Price Target Calculation

Our price target of $60 is derived from a P/E multiple valuation methodology. WCG is currently trading at 7.4x our 2008 EPS projection of $5.40, a major discount to its peer group, reflecting the uncertainty of the company's legal overhang after an FBI raid in October 2007. Our price target represents a multiple of 11.1x our 2008 EPS projection. Our target multiple for WellCare is a modest discount relative to the target multiples we have assumed for other companies in the group, given the uncertain news flow that will impact the company's share price as the investigation progresses.

Risk Factors

The major risk to our price target is the emergence of documents or evidence that WellCare engaged in systematic, widespread fraud in its business. If this occurs, it increases the likelihood that WellCare is stripped of one or more of its government contracts, and raises the possibility that the company will be put out of business. Other risks to our price target include WellCare's relatively high level of profitability in the Florida Medicaid business, high concentration of membership in Florida; an unexpected increase in medical cost trends; budget deficit issues that result in Medicaid funding cuts; actions by Congress to reduce Medicare reimbursement, particularly in the Medicare private fee for service program. We expect WellCare to lose Medicare membership next year, but the legal situation could make our forecast aggressive. Money flows out of the managed care sector remain a concern, particularly in an election year.