Back to top

Analyst Blog

Zacks Equity Research

Molina Upgraded to Outperform

MOH UIS

 ZacksTrade Now

This page is temporarily not available.  Please check later as it should be available shortly. If you have any questions, please email customer support at support@zacks.com or call 800-767-3771 ext.  9339.

We have upgraded our recommendation on Molina Healthcare Inc. (MOH - Analyst Report) to Outperform from Neutral based on its steadily increasing premium revenue, membership growth and a strong 2012 financial guidance. Moreover, the improvement of the Medicaid health plan business due to the strategy of expansion via acquisitions could be a significant opportunity for the company.

Molina reported third quarter operating earnings of 41 cents per share, which came in 2 cents ahead of the Zacks Consensus Estimate. Results were also 8% higher than 38 cents in the year-ago quarter.

The steady increase of premium over the past several quarters is driving revenue growth. The widening membership base is also contributing to the increased revenues. The company has the eighth-highest enrollment in the Medicare special needs plan for dual-eligible members in the US.

Moving ahead, we believe premium revenue will continue to be a significant revenue driver for Molina. This is also evident from management’s guidance of $5.9 billion in premium revenues in 2012. Moreover, the increased premium rates in Florida and Michigan will positively impact revenue in 2012.

Additionally, Molina has been expanding its geographic reach via acquisitions. While the acquisition of the Health Information Management business of  Unisys Corporation (UIS - Analyst Report) adds value to the company’s Medicaid health plan business, the acquisition of Abri Health Plan has brought in a vast exposure covering 23 counties in Wisconsin and approximately 28,000 Medicaid members.

However, Molina’s rising medical costs are compressing margins, remain causes for concern. Higher operating expenses pose a risk to the company’s operating leverage.

Moreover, Molina’s investment income has been declining since 2007. As a percentage of revenue, it declined from 1.2% in 2007 to 0.15% in 2010. Given the persistent low interest rate trend, the percentage of investment income in the revenue will likely keep declining further going ahead.

The Zacks Consensus Estimate for fourth-quarter 2011 currently stands at 39 cents per share, up 1.7% year over year. For 2011, the Zacks Consensus Estimate is $1.55 per share, up about 18% over 2010.

Molina carries a Zacks #2 Rank, which translates into a short-term ‘Buy’ rating.

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

Learn more

Start for as little as $4.50 per trade.

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
DIXIE GRP IN DXYN 15.84 +7.90%
BOFI HLDG IN BOFI 85.30 +4.97%
RAMBUS INC RMBS 12.31 +4.41%
VIPSHOP HOLD VIPS 148.73 +4.35%
NETFLIX INC NFLX 345.74 +4.32%