WellCare Looking Vulnerable

"WellCare has taken issue with our having reached what it deems 'inappropriate conclusions,'" Borsch acknowledged back in late May. "However, we highlight that we first approached management on this issue in June 2006 and have yet to receive an explanation that answers our questions."

Borsch was urging investors to sell WellCare's stock at the time. However, after the shares spiraled well below his $73 price target, he removed WellCare from his firm's "Americas Sell List" and established a neutral rating instead. His firm has investment banking ties to the company.

Meanwhile, in his past research, Borsch indicated that WellCare has been seriously underreporting Medicaid profits in its valuable New York market as well. Since then, Reuters has announced that New York regulators are investigating the company, too.

Notably, analysts have portrayed New York as an important WellCare market that delivers extraordinary profit margins for the company.

"WellCare's profitability level in New York has been very strong," Nersessian noted in early spring. Moreover, "WellCare's organic Medicaid growth opportunities are limited to one state -- New York."

'Distressed Equity'

Lately, WellCare has counted on Georgia to fuel its Medicaid growth instead. Thanks to a new contract, in fact, WellCare saw its Medicaid membership in Georgia explode from 300 to 477,000 customers last year alone.

Back in late April, however, Wright downgraded WellCare yet again -- cutting the stock all the way to underperform -- over concerns about escalating costs in this very market.