A strong growth in enrollment thanks to expansion of Medicaid, and cost efficiencies resulted in a nice earnings beat, leading analysts to raise estimates for this managed care provider. Rising estimates sent the stock to a Zacks Rank #1 (Strong Buy) last month.
About the Company
Founded in 1980 and headquartered in Long Beach, CA, Molina Healthcare (MOH) is a multi-state managed care organization participating exclusively in government-sponsored healthcare programs such as the Medicaid program and the State Children’s Health Insurance Program (SCHIP), catering to low-income persons. Molina currently serves over 3 million members through their locally operated health plans in 11 states across the nation. Their health plan footprint includes 4 of 5 largest Medicaid markets.
Molina has been an excellent growth story with a 26% CAGR in revenue and 15% CAGR in enrollment over the past 5 years.
Excellent First Quarter Earnings
The company reported its Q1 2015 results on May 7. Adjusted net income of $0.71 per share was much ahead of the Zacks Consensus Estimate of $0.50 per share and also significantly up from $0.27 per share in the year-ago quarter. Increase in revenues, improved administrative cost efficiencies and stable medical care costs contributed to the upside.
Total revenue jumped 53.3% year over year to $3.2 billion, in line with the Zacks Consensus Estimate. The year over year increase was thanks mainly to higher membership.
Premium revenues surged 53.1% year over year resulting mainly from an increase of over 38% in enrollment due to growth across all health plan programs.
Rising Estimates
Analysts have raised their estimates for the company after excellent results. Zacks Consensus Estimates for current and next year are now $2.66 per share and $3.57 per share, up from $2.50 per share and $3.43 per share, 30 days ago. They have beaten Zacks Estimates in three out of last four quarters with an average positive surprise of 12.9%.
Updated Guidance
On June 1, the company updated its fiscal year 2015 guidance provided earlier in February, to include the impact of improvements in its medical margin, expansion in the State of Michigan, the proposed offering of common stock, and dilution from its convertible notes due to the company's stock trading price.
While the company maintained its total revenue and diluted EPS guidance at $14.3 billion and $2.35 respectively, EBITDA guidance was increased from $460 million to $485 million.
Consolidation in the Health Insurance Industry?
According to a Leerink Partners LLC analyst, a Humana deal, or even talk of it doing one, will force health insurers, both big and small, to consider their M&A options. The analyst cited Molina as one of the attractive takeout targets in the industry.
The Bottom Line
The stock currently not only sports a Zacks Rank of 1 but it also has perfect Style Scores of ‘A’ in all three categories–Growth, Value and Momentum. The “Medical-HMO” industry is currently ranked 20 out of 265 Zacks industries (top 8%). This exceptional combination makes Molina stock worth a look.
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MOLINA HLTHCR (MOH): Free Stock Analysis Report
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