Most Unusual Analyst Defense of WellCare (WCG)

Late on Thursday, Goldman Sachs has removed WellCare Health Plans (NYSE:WCG) from its Americas Sell List. While this sounds like an upgrade, it is merely a sensible research call.  The upgrade from a Sell to a Neutral reflects the intraday selling taking the shares down 62% from Wednesday’s halt/close and the lack of information regarding the nature and scope of the state and federal investigation (a.k.a. raid) makes any precision call extremely difficult.  You can say that again.  You can say that again.

Goldman Sachs now has established a 6-month target of $40 versus the prior $85 target when the Sell rating was present.  Shares are now down 45% since the mid-February downgrade and shares are down almost 30% over the last 12 months.

We may have said that this is an unusual defense of WellCare by Goldman Sachs, but in all honesty again this is really the right call.  Sometimes these research teams get incredible insight or an incredible vantage point that is different than the norm.  This is/was one of those cases.

WellCare did issue another press release after the close discussing the cooperation and business as usual stance and the hiring of a firm to assist, but there was no meat in it for analysts to chew on.  In fact, you’d have to be personal counsel to the FBI or state agency raiders to know what the full investigation is about.  24/7 Wall St. has heard multiple "explanations" but we don’t want to participate in any rumors or speculation when the truth has no way of being known.

In case you are wondering if this will be quickly resolved, the short answer is not just NO. HELL NO.  These sometimes actually do result in very little net effect to the business, but these are always quite disruptive and there is almost never a quick resolution nor is there ever a quick fix.

Jon C. Ogg
October 26, 2007