Shares of WellCare Health Plans jumped more than 40 percent Monday after a news report implied less harm could come from a probe hovering over the health insurer than had previously been expected.
The company, which also reported a preliminary 67 percent rise in quarterly profit, has seen its shares battered after its offices were raided by state and federal agents last month.
Few details about the probe have emerged.
WellCare serves 2.3 million low-income, elderly and other members through government-sponsored Medicare and Medicaid health plans.
The Wall Street Journal reported over the weekend that the raid was spurred at least in part by allegations that the company had inflated its mental health-care costs to keep money it should have refunded to Florida's Medicaid program.
"The third-quarter results are overshadowed by market speculation that the outcome of the investigation will leave more equity value than was implied last week when shares were trading below $25," Goldman Sachs analyst Matthew Borsch said in a research note.
Borsch said investors are reacting to implications from the report that the probe's ramifications might be less severe.
Shares of WellCare were up $9.82, or 35.9 percent, to $37.19 in afternoon trade on the New York Stock Exchange after climbing as high as $39.55. Before the raid last month, they were trading above $115.
The Journal's report, which cited a person familiar with details of the investigation, said the federal and Florida investigation followed the filing of a whistle-blower lawsuit by a former employee of Harmony Behavioral Health, a WellCare subsidiary.
The company's practices allegedly defrauded the state and federal health-care programs of more than $35 million over five years, the newspaper said.
WellCare said it has not been served with and has not seen the whistle-blower lawsuit referenced in the article.
Jefferies analyst Brian Wright raised his rating on WellCare shares to "buy" after the Journal's report, and his price target on the shares to $50.
Wright increased the probability that the end result of the probe would be just a fine to 84 percent from his previous projection of 53 percent.
The company also said Monday it had learned that a former employee of its special investigations unit filed a lawsuit in state court in Leon County, Florida, last month against several defendants, including the company and one of its subsidiaries.
The company said the suit is under seal so it is unable to determine whether it relates to the government probe.
Analysts have speculated that last month's raid could relate to a possible whistle-blower lawsuit brought by a former or current employee.
In preliminary results reported on Monday, third-quarter net income rose to $72.4 million, or $1.71 per share, from $43.3 million, or $1.06 per share, a year earlier.
Excluding a gain related to legal matters, earnings of $1.57 were 5 cents ahead of analysts' expectations, according to Reuters Estimates.
Revenue rose 41.7 percent to $1.43 billion. WellCare cited the launch of a Medicaid health plan in Georgia and growth in its Medicare plans for seniors.
Total membership rose nearly 8 percent to 2.34 million from a year earlier. WellCare reported 160,000 members in its Medicare Advantage plans at Sept. 30 compared with 87,000 a year before.
The company said last week it would not submit its quarterly filing to regulators until an independent investigation into the matter had finished.
WellCare said it is cooperating with the U.S. Department of Justice, the U.S. Federal Bureau of Investigation, the U.S. Department of Health and Human Services Office of Inspector General and the Florida Attorney General's Medicaid Fraud Control Unit.