Shannon Jones: Let’s turn our
attention to your second stock, Todd. One of the themes that I have recognized from
our most recent shows, and even with this one, as we were identifying these stocks,
is that the aging baby boomer population is a massive, massive opportunity for investors
to get in on growth opportunities, not just on the drug side, but also on
the healthcare insurance side. Todd Campbell: Yeah!
Talk about a huge market. 10,000 baby boomers per day turning 65.
A longer-living population. That’s significant because it means demand
for healthcare services by the elderly is increasing. That should put a company like WellCare Health,
ticker WCG, in a great position to profit from its Medicaid and
Medicare insurance business. Jones: It looks like WellCare plays a huge
part in the marketplace for insurance, primarily Medicaid and Medicare. It’s been interesting watching this particular stock,
especially coming off of the midterm elections. Now that we have the Democrats in the House,
things have certainly changed for this company. Campbell: Yeah, which is interesting. The last two years after Trump was elected,
and of course, the Republicans had control of both the House and the Senate,
there was an attempt to eliminate Obamacare. Obamacare includes a provision
that expanded Medicaid. Now, states didn’t have to opt into
Medicaid expansion, but many of them did. So, one of the fears over the last two years
was that if Obamacare was rolled back, what would happen with Medicaid expansion? And one of the things that investors have
to recognize is that what happens with these insurers is that they go out
and they bid on a per member basis. The more people who are enrolled in Medicaid
programs, the more money they make in premiums. Medicaid expansion has been a huge
win for companies like WellCare Health. And the threat of that getting rolled back, obviously,
was something that was on the minds of investors. Now that the Democrats took control of the
House, I think the likelihood of any kind of a real repeal or replace that jeopardizes
Medicaid expansion has become de-risked. It’s low to non-existent in my view. I think that provides an interesting tailwind
or backstop to WellCare Health’s stock price, which over the last six to eight
weeks has tumbled about 25%. Jones: And it’s not
just Medicaid. It’s also Medicare. Also, it sounds like this company is pretty
aggressive when it comes to acquisitions. It has multiple areas that it’s targeting
and strategically focusing on. Campbell: They get most of their
sales from the Medicaid side of things. $3.2 billion in revenue from
Medicaid in the third quarter. That represented about 64%
of their total revenue of $5.1 billion. They’re still predominantly a Medicaid insurer.
They have been going out and bidding in new states. They won new bids,
new contracts in Florida and Arizona. They also went out and bought
a competitor called Meridian. All of those things are going to increase and drive
revenue higher on the Medicaid side of things in 2019. Then, on the Medicare side of things,
they’re also selling Medicare Advantage businesses. They’re targeting all those people who are
turning 65 and are trying to figure out, do I want to stay with regular Medicare,
traditional Medicare? Or do I want to go with
a Medicare Advantage plan. Because traditional Medicare doesn’t have
out-of-pocket limits on what the patient will have to pay, many people are
choosing these Medicare Advantage plans. And as a result, its Medicare revenue is growing. They
did $1.6 billion in Medicare revenue in the third quarter. That was up from $1.47
billion the year before. That’s because they’re getting more and more
members to sign up for their Medicare Advantage plans. Jones: It also sounds like WellCare
is upping their full-year guidance for 2018. It sounds like they’re growing not just on
the acquisition front, but organically, as well. What can you tell us about that, Todd? Campbell: The revenue was up year
over year 15%, as I mentioned. They’re a profitable company. Their medical cost ratio,
MCR ratio, is somewhere in the mid-80s. They do a good job as far
as managing their risk in that way. They also have a nice little tailwind coming
soon because they agreed to buy Aetna’s part D business in September. As listeners may remember,
Aetna has agreed to combine with CVS. But to get approval for that combination from
the Department of Justice, Aetna had to get rid of its part D revenue. What ended up
happening is, WellCare went out and bought it. They’re going to get an additional $1.5 billion
in revenue tailwinds, assuming all the members stick around once they’ve
officially taken that over. I think we’ll probably see most of that revenue
show up in 2020. It may not be a 2019 thing, but 2020. You’ve got the advantage of the Medicaid
expansion in Florida and Arizona, organic growth, Medicare Advantage growth, and then the potential
tailwind from buying the part D that could help support growth in two years rather than in the next 12 months.
Jones: Lots of opportunities for WellCare there.