Why WellCare Health Plans Shares Turned Red

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 government-sponsored managed health care provider WellCare Health Plans (NYS: WCG) appear to be sick, dropping as much as 15% after the company reported disappointing third-quarter earnings results.

So what: For the quarter, WellCare reported EPS of $1.05 as revenue rose 18% to $1.82 billion. Unfortunately, revenue fell $10 million shy of consensus estimates, and EPS missed by a mile ($0.42 shy of estimates). WellCare blamed rising medical care costs in Kentucky -- a similar theme recently noted by rival Centene (NYS: CNC) -- and a premium reduction in Georgia for the majority of its earnings weakness. It also noted that it'd be purchasing UnitedHealth Group's (NYS: UNH) South Carolina Medicaid business, which should bring in an additional 65,000 members.

Now what: Medicaid-based health solutions companies are really difficult to figure out right now. Companies like WellCare, Centene, and Molina Healthcare (NYS: MOH) make sense on paper as long as the Affordable Care Act remains on the table. The ACA should bring in some 17 million new people approved to use an expanded version of Medicaid coverage. Though, similarly, medical costs in Texas, Kentucky, and California have ravaged the sector as of late. Centene announced it was leaving Kentucky altogether, while Molina has pointed toward weakness in California. It should be interesting to see how WellCare responds in the coming quarters to Kentucky's rising care costs; as for me, I'm perfectly happy remaining on the sidelines.

Craving more input? Start by adding WellCare Health Plans to your free and personalized Watchlist so you can keep up on the latest news with the company.

The article Why WellCare Health Plans Shares Turned Red originally appeared on Fool.com.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.Motley Fool newsletter services have recommended buying shares of, and creating a diagonal call position in, UnitedHealth Group. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.