Why Universal American Corporation Shares Are Up 10.7% Today

By Todd CampbellMarketsFool.com

Image source: Getty Images.

Continue Reading Below

What happened

After announcing that it's agreed to be acquired by WellCare Health Plans (NYSE: WCG), shares of Universal American Corporation (NYSE: UAM) are climbing nearly 10.7% at 11 a.m. EST Thursday.

So what

More From Fool.com

News that WellCare is buying the Medicare insurer marks the latest in what's been a busy year for Universal American.

In August, Universal American sold its Medicaid business to Molina Health and its traditional health insurance business to Nassau Reinsurance, and in September it resolved outstanding litigation by repurchasing shares from defendants in a move that, combined with prior repurchases, reduced its share count by 31%.

These moves positioned Universal American as a concentrated player in Medicare Advantage and Medicare accountable care organizations in Texas, New York, and Maine. Apparently, it also positioned the company as an ideal fit for WellCare Health, a Medicare and Medicaid insurer that has big exposure in southern states, including Florida.

Under the terms of the agreement,Universal Americaninvestors will receive$10 in cash per common share.

Now what

WellCare is coming off the heels of a strong third quarter in which its premium revenue grew year over year to $3.6 billion from $3.4 billion and its adjusted EPS improve to $1.63 from $1.04. The company's performance resulted in management increasing their full year EPS outlook to $5.35-$5.45 from prior guidance of between$4.95 to $5.05.

WellCare's management thinks the addition of Universal Americans adds approximately 114,000Medicare Advantagemembers, 70% of whom are enrolled in a 4.0 or higher Star Rated Medicare plans, can further accelerate its earnings. In the first full year after this deal closes, WellCare is expecting this deal to add between $0.60 and $0.70 to its bottom line. In the second year, management thinks it will add between $0.70 and $0.80 in profit as it increasingly benefits from anticipated annual synergies of at least $25 million by 2019.

Forget the 2016 Election: 10 stocks we like better than WellCare Health Plans Donald Trump was just elected president, and volatility is up. But here's why you should ignore the election:

Investing geniuses Tom and David Gardner have spent a long time beating the market no matter who's in the White House. In fact, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and WellCare Health Plans wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of November 7, 2016

Todd Campbell has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.