Managed care provider Wellcare Health Plans Inc's fourth-quarter profit edged past analysts' estimates on growth in its Kentucky Medicaid health plan that previously dragged on the results of several insurers.
The company's shares jumped 12 percent to a four-month high of $16.64 in early trading on the Nasdaq.
Wellcare on Wednesday said it was able to increase its premium by about 7 percent in Kentucky since January under an amendment of its health plan in the region.
This rate increase could help the company turn a profit in Kentucky, Citi and Wedbush analysts said.
Kentucky has been a sore spot for Wellcare and other insurers such as Centene Corp as medical costs in the region have outstripped premium revenue over the last few quarters, eating into profit margins.
Centene said earlier this month that it would exit the Kentucky market by July.
Wellcare said total membership rose 4 percent to 2.7 million at the end of December, helped by its Kentucky health plan and the recent acquisition of Easy Choice Health Plan, which serves Southern California markets.
While Medicaid claims in Kentucky were about 97 percent of premium revenue in the fourth quarter, the number has been falling, highlighting Wellcare's ability to manage medical expenses, Wedbush Securities analyst Sarah James said.
Wellcare's net income fell to $48.8 million, or $1.11 per share, in the quarter ended December 31, from $85.1 million, or $1.96 per share, a year earlier. On an adjusted basis, it earned $1.32 per share.
Analysts expected fourth-quarter earnings of $1.31 per share, according to Thomson Reuters I/B/E/S.
Premium revenue jumped 24 percent to $2 billion.
Some analysts said fourth-quarter results were much better than the most recent expectations.
Wellcare was expected to earn about $1.16 per share in the quarter, according to Thomson Reuters Starmine's SmartEstimates, which accords greater weight to recent forecasts from historically more accurate analysts.
Barclays analysts called the quarter "a solid starting point," saying the company had made major progress on the biggest area of concern -- Kentucky Medicaid.
Wellcare now expects adjusted profit for the full year to be between $4.50 per share and $4.85 per share on premium revenue of $8.7 billion to $8.8 billion.
Analysts on average were expecting earnings of $4.97 per share, according to Thomson Reuters I/B/E/S.
"The outlook looks conservative to me, given the size of the rate increase in Kentucky," Wedbush's James said.
"There's also a high level of investment spend in there that is going to fuel future growth."
(The story corrects Feb. 13 story to remove reference to Molina Healthcare in fifth paragraph. Molina does not have a presence in Kentucky.)
(Editing by Joyjeet Das)