Today I will take a look at WellCare Health Plans, Inc.’s (NYSE:WCG) most recent earnings update (31 December 2018) and compare these latest figures against its performance over the past few years, as well as how the rest of the healthcare industry performed. As an investor, I find it beneficial to assess WCG’s trend over the short-to-medium term in order to gauge whether or not the company is able to meet its goals, and ultimately sustainably grow over time.
Did WCG beat its long-term earnings growth trend and its industry?
WCG’s trailing twelve-month earnings (from 31 December 2018) of US$440m has jumped 18% compared to the previous year.
However, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 33%, indicating the rate at which WCG is growing has slowed down. Why could this be happening? Well, let’s take a look at what’s occurring with margins and whether the whole industry is facing the same headwind.
In terms of returns from investment, WellCare Health Plans has fallen short of achieving a 20% return on equity (ROE), recording 10% instead. Furthermore, its return on assets (ROA) of 4.5% is below the US Healthcare industry of 7.0%, indicating WellCare Health Plans’s are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for WellCare Health Plans’s debt level, has declined over the past 3 years from 16% to 13%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 40% to 50% over the past 5 years.
What does this mean?
Though WellCare Health Plans’s past data is helpful, it is only one aspect of my investment thesis. Positive growth and profitability are what investors like to see in a company’s track record, but how do we properly assess sustainability? I suggest you continue to research WellCare Health Plans to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for WCG’s future growth? Take a look at our free research report of analyst consensus for WCG’s outlook.
- Financial Health: Are WCG’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 31 December 2018. This may not be consistent with full year annual report figures.
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