The Affordable Care Act (“Obamacare”) has been a focus of D.C. discussions for the past few years.  It was enacted in 2010 with the goals of increasing the quality and affordability of insurance, lowering the uninsured rate by expanding public and private insurance coverage, and reducing the costs of healthcare.  Not only has the ACA had a huge political impact, but it should have a big impact in the private insurance market too.  

One company poised to benefit from the expansion of coverage is WellCare Health Plans Inc. (WCG).  According to Bloomberg (thank you B for the article!), this company may soon be a takeover target thanks to its high growth projections.  WellCare is a provider of managed care services to government-sponsored health care programs, focusing on Medicaid and Medicare. The Company offers a range of health plans for families, children, and the aged, blind and disabled, as well as prescription drug plans  

Not only is the Medicare population expanding thanks to the aging baby boomer population, the number of people on Medicaid is expanding thanks to the ACA (there are estimates Medicaid enrollment will increase by 8.7 million people in 2014 alone).  And many governments are shifting to managed-care companies like WellCare in an effort to save costs.  All of this translates to a big growth potential: WellCare is forecast to climb about 45 percent through 2015, almost twice the median of its peers, according to data compiled by Bloomberg.  Take this growth projections, plus the fact that WellCare does not have a CEO right now, and you have a recipe for a takeover target by big players like Cigna or Humana.  

In addition to this takeover talk I like WellCare from a technical perspective.  Normally high growth comes with a high price to earnings ratio too (generally a measure of how “expensive” a stock is).  For reference, Netflix’s P/E ratio is 180, while WellCare’s is only 16.  That means its price is trading at only 16 times its earnings per share, which is on the low end of its peer group (which ranges from 12 to 36).  

It is worth noting that recent analyst consensus on the stock is “hold,” with a price target of $68.  So this isn’t by any means an automatic buy, but it’s a stock I will be seriously considering adding.  


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