WellCare Health Plans (WCG) Stock Continues to Face Downside Pressure

The most likely downside targets are previous support levels at $70 and $60.
By Bruce Kamich ,

NEW YORK (TheStreet) -- While some parts of the equity market have rallied from their August lows into the fourth quarter, WellCare Health Plans (WCG) - Get Report has been under downside pressure.

In this chart of WCG, above, we can see that key support for several months has developed around $75, sometimes a tad above or below that level. Rallies have petered out in the $95 area and sometimes around $90. This is a toppy looking chart. The On-Balance-Volume (OBV) line turned down in early September, suggesting that liquidation has picked up and the Moving Average Convergence Divergence (MACD) oscillator is bearish.

In this longer-term chart of WCG, above, we can see prices are below the 40-week moving average and the slope of the average is turning negative. The OBV line is pointed lower and the MACD oscillator is weak. The most likely downside targets are previous support levels at $70 and $60.

TheStreet Ratings team rates WELLCARE HEALTH PLANS INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

We rate WELLCARE HEALTH PLANS INC (WCG) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its increase in net income, revenue growth, largely solid financial position with reasonable debt levels by most measures, solid stock price performance and growth in earnings per share. We feel its strengths outweigh the fact that the company shows weak operating cash flow.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Health Care Providers & Services industry. The net income increased by 88.6% when compared to the same quarter one year prior, rising from $19.30 million to $36.40 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 10.2%. Since the same quarter one year prior, revenues slightly increased by 1.0%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The debt-to-equity ratio is somewhat low, currently at 0.71, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. To add to this, WCG has a quick ratio of 1.70, which demonstrates the ability of the company to cover short-term liquidity needs.
  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period. Although other factors naturally played a role, the company's strong earnings growth was key. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.
  • WELLCARE HEALTH PLANS INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, WELLCARE HEALTH PLANS INC reported lower earnings of $1.45 versus $3.98 in the prior year. This year, the market expects an improvement in earnings ($3.45 versus $1.45).
  • You can view the full analysis from the report here: WCG

Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.

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