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Molina: ACA Repeal Plans a Threat, Buyout Deals on Track
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On Dec 15, 2016, we issued an updated research report on Molina Healthcare Inc. (MOH - Free Report) . The California-based medical insurer is a multi-state managed care organization that participates exclusively in government-sponsored healthcare programs.
Molina Healthcare has consistently grown its membership base by introducing new health plans and upgrading the existing ones. Moreover, its participation solely in the government sector has significantly contributed to the rising membership. The Affordable Care Act (ACA), popularly known as ObamaCare, is largely responsible for this.
Increase in membership has resulted in a rise in premiums and largely supported the company’s top-line growth. Further, consistent increase in service revenues helped in revenue expansion. Given the company’s strong third-quarter performance, management now expects $16 billion of premium revenues and $560 million of service revenues in 2016, which translates into year-over-year growth of 21.2% and 121.3%, respectively.
Molina Healthcare has been growing inorganically via in-market or tuck-in acquisitions.. These have helped it to grow significantly in existing markets. After 2015, which was deemed the most active MA (Mergers & Acquisition) year, the company completed its buyout of Universal American’s Total Care Medicaid plan. This apart, it agreed to buy certain Medicare Advantage assets from both Aetna Inc. and Humana Inc. (HUM - Free Report) in 2016. These deals reflect the company's focus on arranging healthcare services for patients with complex requirements, which in turn, is expected to boost revenues.
However, increasing medical care costs have been putting pressure on margins and hence, raise concerns. The increased expenses mainly stemmed from higher utilization factors and were most evident regarding physician and outpatient costs. High operating expenses also continue to pose a risk for the company's operating leverage and can weigh heavily on margins, bottom line and cash flows going ahead. In the recently reported third quarter, Molina Healthcare witnessed nearly 27% year-over-year increase in total operating cost.
Further, the company’s dependence on debt financing, which resulted in an increase in interest expenses, is another negative. In the third quarter too, interest expenses increased 73% year over year to $26 million. The company anticipates overall interest expense to increase by $33 million year over year and reach $100 million by the end of 2016.
Donald Trump’s intention to replace and repeal the ACA is also likely to affect the company. This is because ACA had substantially contributed to the company’s growing membership. Therefore, the strong possibility of the ACA being revoked and the uncertainty regarding the medical sector’s prospects might severely affect the company’s business.
Since the declaration of the Presidential election results on Nov 8, 2016, shares of Molina Healthcare lost 7.44% as against the Zacks categorized Health Maintenance Organizations industry’s gain of 11.8%.
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Also, the Zacks Consensus Estimate for the current quarter witnessed downward revision over the last 30 days from 76 cents to 75 cents per share.
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Molina: ACA Repeal Plans a Threat, Buyout Deals on Track
On Dec 15, 2016, we issued an updated research report on Molina Healthcare Inc. (MOH - Free Report) . The California-based medical insurer is a multi-state managed care organization that participates exclusively in government-sponsored healthcare programs.
Molina Healthcare has consistently grown its membership base by introducing new health plans and upgrading the existing ones. Moreover, its participation solely in the government sector has significantly contributed to the rising membership. The Affordable Care Act (ACA), popularly known as ObamaCare, is largely responsible for this.
Increase in membership has resulted in a rise in premiums and largely supported the company’s top-line growth. Further, consistent increase in service revenues helped in revenue expansion. Given the company’s strong third-quarter performance, management now expects $16 billion of premium revenues and $560 million of service revenues in 2016, which translates into year-over-year growth of 21.2% and 121.3%, respectively.
Molina Healthcare has been growing inorganically via in-market or tuck-in acquisitions.. These have helped it to grow significantly in existing markets. After 2015, which was deemed the most active MA (Mergers & Acquisition) year, the company completed its buyout of Universal American’s Total Care Medicaid plan. This apart, it agreed to buy certain Medicare Advantage assets from both Aetna Inc. and Humana Inc. (HUM - Free Report) in 2016. These deals reflect the company's focus on arranging healthcare services for patients with complex requirements, which in turn, is expected to boost revenues.
However, increasing medical care costs have been putting pressure on margins and hence, raise concerns. The increased expenses mainly stemmed from higher utilization factors and were most evident regarding physician and outpatient costs. High operating expenses also continue to pose a risk for the company's operating leverage and can weigh heavily on margins, bottom line and cash flows going ahead. In the recently reported third quarter, Molina Healthcare witnessed nearly 27% year-over-year increase in total operating cost.
Further, the company’s dependence on debt financing, which resulted in an increase in interest expenses, is another negative. In the third quarter too, interest expenses increased 73% year over year to $26 million. The company anticipates overall interest expense to increase by $33 million year over year and reach $100 million by the end of 2016.
Donald Trump’s intention to replace and repeal the ACA is also likely to affect the company. This is because ACA had substantially contributed to the company’s growing membership. Therefore, the strong possibility of the ACA being revoked and the uncertainty regarding the medical sector’s prospects might severely affect the company’s business.
Since the declaration of the Presidential election results on Nov 8, 2016, shares of Molina Healthcare lost 7.44% as against the Zacks categorized Health Maintenance Organizations industry’s gain of 11.8%.
PRICE CHART
Also, the Zacks Consensus Estimate for the current quarter witnessed downward revision over the last 30 days from 76 cents to 75 cents per share.
Molina Healthcare presently carries Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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How would you like to see our best recommendations to help you find today’s most promising long-term stocks? Starting now, you can look inside our portfolios featuring stocks under $10, income stocks, value investments and more. These picks, which have double and triple-digit profit potential, are rarely available to the public. But you can see them now. Click here >>