WellCare Looking Vulnerable

"We believe WCG is at risk for higher-than-expected medical costs in Georgia, as the issues appear to be systemic," Wright warned at the time. "We estimate that the plans would need about a 7% rate increase in order to meet profitability targets. [But] we view this magnitude of an increase as highly unlikely given the program has not even reached the first full year of operation and current budgetary issues in the state."

Now that prospect looks even dimmer, with Wright noting last month that Georgia officials have started auditing WellCare's payments to healthcare providers amid public outcry over the state's newly privatized Medicaid program. Due to the plunge in WellCare's share price, however, Wright has since lifted his rating on the stock back to hold.

To be fair, WellCare's Medicaid business in other states looks relatively safe with no contract expirations looming. Yet all of these states, besides Illinois and Ohio, rank as relatively minor markets for the company.

Still, given the huge risks and uncertainties involved, analysts have found it virtually impossible to determine just how much WellCare is actually worth.

"There is very little in the way of so-called 'free cash' that would be left over (probably $100 million to $200 million), and fines could easily consume all of that," Rex observed this month. Meanwhile, "the fundamental 'distressed equity' valuation problem in managed care is that these companies have almost nothing in the way of hard assets, with the customer contracts being the key asset" in the end.

Thus, he added, "if/when these start unwinding, there are 'go-to-zero' scenarios for these stocks."