Back to top

Analyst Blog

We have upgraded our recommendation on Molina Healthcare Inc. (MOH - Analyst Report) to Outperform from Neutral, owing to the uptrend in premium and service revenue along with improving membership. Additionally, the company’s strategy of expansion via acquisitions is benefiting its Medicaid business.

Molina has been witnessing a steady increase in premium revenues, which account for a majority of the revenues, over the past several years. It increased 87% over the past four years (2007-2011). Further, premium revenues surged 29% year over year in the first nine months of 2012.

Service revenue, the second largest component of Molina’s revenue, has also been increasing gradually since 2010. The first nine months of 2012 witnessed a year-over-year surge of 19%. As a result of the increasing premium and service revenue, the company’s total revenue has also been improving steadily since 2007.

Moreover, Molina’s membership has been increasing due to the creation of new health plans and the development of the existing ones. Aggregate membership increased 9% over the first nine months of 2012 and currently, the company serves nearly 1.83 million members.

Molina holds a healthy balance sheet with a steadily improving cash flow. It increased 130% in the first nine months of 2012 due to higher medical claims and benefits from the Texas health plan and higher deferred revenue.

However, management remains cautious about the rising medical care costs, which are compressing margins. Medical care costs have spiked dramatically by 84% in the four year period (2007-2011). The first nine months of 2012 also witnessed the trend.

Moreover, the higher-than-expected medical claims and an MCR of 120% for the STAR+PLUS plan in two new Texas markets forced Molina to withdraw its 2012 earnings guidance in June 2012. The high operating expenses pose a risk to the company’s operating leverage.

Molina currently carries a Zacks #3 Rank, implying a short-term ‘Hold’ rating. Peer Health Net Inc. (HNT - Analyst Report) carries a Zacks #2 Rank (Buy).

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

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
RPC INC RES 24.91 +8.35%
LITHIA MOTO… LAD 94.59 +4.60%
DELTA AIR L… DAL 39.15 +3.90%
FLAMEL TECH… FLML 14.51 +3.50%
SOUTHWEST A… LUV 28.87 +2.92%