Magellan Health Services Inc. (MGLN) reported third-quarter adjusted earnings of $1.09 per share, which cruised ahead of the Zacks Consensus Estimate of 44 cents. However, the figure declined a 35.8% year-over-year.
Including amortization of acquired intangibles, net income came in at $1.00 per share, down from net income of $1.70 per share reported in the year ago quarter.
Operational Update
Magellan Health’s net revenue totaled $923.2 million in the third quarter, which missed the Zacks Consensus Estimate of $930 million by approximately 0.8%. However, the results improved 5.7% year over year. The increased net revenue came on the back of higher sales derived from PBM and dispensing.
Total cost and expenses of Magellan Health moved up 7.5% year over year to $900.8 million in the reported quarter. The rise primarily stemmed from an increase in cost of goods sold, direct service cost and other operating expenses, depreciation and amortization as well as interest expense.
Magellan Health generated segment operating profit of $62.2 million in the reported quarter, which increased 5% year over year. The upside came on the back of solid performance at commercial sector, specialty solutions and pharmacy management.
Segment Update
Commercial: Revenues were down 24.3% year over year to $144.2 million.
Operating profit at the segment increased 38.6% from the year-ago quarter.
Public Sector: Revenues grossed $388.6 million in the third quarter, decreasing 12.7% from the prior-year quarter.
However, operating profit at this segment declined 78.9% year over year to $7.3 million.
Specialty Solutions: Revenues grossed $120.8 million in the third quarter, increasing 28.3% from a year ago.
Operating profit for the segment came in at $16.4 million, improving 8.8% from the comparable quarter in the previous year.
Pharmacy Management: Revenues amounted to $49.2 million, declining 13.8% year over year.
Operating profit at this segment also moved up 89.1% from the comparable year-ago period.
Financial Update
Magellan Health exited third-quarter 2014 with cash and cash equivalents of $390.8 million, which included proceeds from the drawdown of the $250 million term loan under the company’s new credit facility.
Net cash provided by the operating activities of Magellan Health was $194.2 million as of Sep 30, 2014. It inched up by 13.4% from the 2013 number.
Capital expenditure by Magellan Health amounted to $50.6 million as of Sep 30, 2014 compared to $42.0 million reported year ago.
Share Repurchase
The company has bought back 2.8 million shares worth $161.8 million to date. Under the current authorization of $300 million, Magellan Health has completed the repurchase of $277.7 million worth of stock.
The board of directors further authorized a new share repurchase program of up to $200 over a period of two years till Oct 22, 2016.
Guidance
Magellan Health expects net revenue of $3.6–$3.8 billion, net income of $63– $77 million, segment profit of $243–$258 million and cash flow from operations in the range of $207–$226 million for 2014.
Operating net income is projected to be $2.30–$2.81 per share, taking into account the impact of the share buyback activity through Oct 21, 2014.
The company expects full-year net income in the range of $88.0–$102.0 million and adjusted earnings per share to be $3.21 to $3.72.
Magellan Health currently holds a Zacks Rank #2 (Buy).
Other Stocks to Consider
Investors interested in the medical sector could consider stocks like Health Net, Inc. (HNT), Triple-S Management Corporation (GTS) and UnitedHealth Group Incorporated (UNH). All of these have same Zacks Rank as Magellan Health.
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