One of the cheapest stocks in our All Investable Stock Screener is WellCare Health Plans, Inc (NYSE:WCG).
WellCare Health Plans, Inc. (WellCare) is a managed care company. The company focuses on government-sponsored managed care services, primarily through Medicaid, Medicare Advantage (MA) and Medicare Prescription Drug Plans (PDPs), to families, children, seniors and individuals with medical needs. WellCare operates through three segments: Medicaid Health Plans, Medicare Health Plans and Medicare PDPs.
A quick look at the company’s share price history (below) over the past twelve months shows that WellCare has had a great run with its share price up 70%. Despite the tremendous rise in its share price here’s why WellCare still remains undervalued and has plenty of room for growth.
Starting with the company’s latest balance sheet, dated March 2017, we can see that WellCare has $5.610 Billion in cash and cash equivalents and $395 Million in marketable securities which equates to $6.005 Billion in cash and cash equivalents. Further down the balance sheet we can see that the company has $900 Million in short-term debt and $1.180 Billion in long-term debt which equates to total debt of $2.080 Billion. When we subtract the total debt from the total cash and cash equivalents WellCare has a net cash position of $3.925 Billion.
If we consider that Wellcare’s current market cap is $7.989 Billion, when we subtract the net cash of $3.925 Billion that means WellCare is currently selling for an Enterprise Value of $4.064 Billion. A quick look at the company’s latest income statements shows that WellCare has $619 Million in trailing twelve month operating earnings. That means that the company is currently trading on an Acquirer’s Multiple of 6.56, or 6.56 times trailing twelve month operating earnings.
The Acquirer’s Multiple is defined as:
Enterprise Value/Operating Earnings*
*We make adjustments to operating earnings by constructing an operating earnings figure from the top of the income statement down, where EBIT and EBITDA are constructed from the bottom up. Calculating operating earnings from the top down standardizes the metric, making a comparison across companies, industries and sectors possible, and, by excluding special items–income that a company does not expect to recur in future years–ensures that these earnings are related only to operations.
If we move over to WellCare’s latest cash flow statements we can see that the company generated operating cash flow of $1.254 Billion (ttm) and had capex of just $112 Million (ttm) which equates to $1.142 Billion (ttm) in free cash flow. With an Enterprise Value of $4.064 Billion that means WellCare is currently trading on a FCF/EV Yield of 28%.
In terms of the company’s financial strength indicators, as of today WellCare has a Piotroski F-Score of 6, a Altman Z-Score of 3.34, and a Beneish M-Score of -3.52 so the company remains financially strong. While the company’s trailing twelve month revenues have grown to $14.651 Billion from $9.528 Billion in FY2013 at the same time WellCare has maintained its gross margins around 15%, operating margins around 3.7%, and net profit margins around 1.85%.
To summarize, WellCare has seen significant growth in its share price over the past twelve months, up 70% but there’s still plenty of room for growth. The company has a very strong balance sheet with $6.005 Billion in cash and cash equivalents and total debt of $2.080 Billion. WellCare is financially strong with a Piotroski F-Score of 6, a Altman Z-Score of 3.34, and a Beneish M-Score of -3.52.
The company is currently generating historically high revenues and profits while maintaining the same levels of gross and operating margins. WellCare is extremely well run with trailing twelve month free cash flow of $1.142 Billion almost twice that of FY2016 of $642 Million. In terms of its valuation the company is currently trading on a P/E of 29.5, a FCF/EV Yield of 28% and an Acquirer’s Multiple of 6.56, or 6.56 times trailing twelve month operating earnings. That’s why WellCare still remains a bargain.
The All Investable U.S. Stock Screener (CAGR 25.9%)
Over a full sixteen-and-one-half year period from January 2, 1999 to July 26, 2016., the All Investable stock screener generated a total return of 5,705 percent, or a compound growth rate (CAGR) of 25.9 percent per year. This compared favorably with the Russell 3000 TR, which returned a cumulative total of 265 percent, or 5.7 percent compound.
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