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Molina Healthcare Inc. (MOH - Analyst Report) reported fourth-quarter 2012 net earnings per share of 54 cents, significantly surpassing the Zacks Consensus Estimate of 21 cents. Moreover, earnings per share increased from the year-ago quarter’s earnings of 51 cents.

Including a $64.6 million Missouri health plan impairment charge in the year-ago quarter, net income for the quarter came in at $25.6 million or 54 cents compared with net loss of $33 million or 72 cents in the prior-year quarter.

Total revenue for the reported quarter climbed to $1.58 billion from $1.31 billion in the prior-year quarter. Total revenue marginally exceeded the Zacks Consensus Estimate of $1.57 billion.

Premium revenues surged 22% year over year to $1.48 billion. Moreover, Molina’s service revenue jumped to $55.4 million from $49.2 million in the year-ago quarter. Additionally, rental income increased to $3.97 million in the quarter from $0.55 million in the year-ago quarter.

However, investment income declined to $1.19 million from $1.74 million a year ago. Premium tax also declined to $38.04 million from $43.96 million in the fourth quarter of 2011.

Total expenses also surged 21% year over year to $1.52 billion. The surge was driven by medical care costs that escalated to $1.27 billion from $1.04 billion in the prior-year quarter, cost of service revenues that increased to $43.1 million from $39.0 million, general and administrative (G&A) expenses that escalated to $153.4 million from $125.0 million and depreciation and amortization (D&A) costs that increased to $16.3 million from $12.1 million. However, premium tax expenses declined to $38.0 million from $44.0 million in the prior-year quarter.

Additionally, interest expense increased to $4.35 million from $3.85 million in the year-ago quarter. Further, medical care ratio (ratio of medical care costs to premium revenue) deteriorated to 86.1% from 85.7% in the year-ago quarter.

Earnings before interest and taxes were $54.1 million in the reported quarter compared with a loss of $16.1 million in the comparable prior-year quarter.

Full-Year 2012 Highlights

For full year 2012, Molina reported operating income of 21 cents per share, which was wider than the Zacks Consensus Estimate of a loss of 13 cents but lagged $1.82 earned in 2011. Operating income for 2011 excludes a $64.6 million Missouri health plan impairment charge.

Net income came in at $9.8 million or 21 cents per share, compared with $20.8 million or 45 cents per share in 2011. The decline was due to contracted margins in the Health Plans segment, which offset increased premium revenues.

Molina’s total revenue amounted to $6.03 billion in 2012, showing a 26% year-over-year increase from $4.77 billion. Total revenue also marginally exceeded the Zacks Consensus Estimate of $6.02 billion.

Moreover, premium revenues came in at $5.7 billion, up 27% year over year as a result of favorable demographic shift, benefit expansion and higher membership. Additionally, total expenses increased to $5.99 billion from $4.63 billion.

Financial Update

Molina exited 2012 with $1.2 billion in cash and investments, while the parent company had cash and investments of $46.9 million. At the end of 2012, Molina’s total assets increased to $1.93 billion from $1.65 billion at 2011 end, while shareholders’ equity improved to $782.3 million from $755.1 million as of Dec 31, 2012.

During the reported quarter, cash flow from operations increased to $80.3 million from $70.2 million in the prior-year quarter. In 2012, Molina generated operating cash flows of $344.3 million, increasing from $225.4 million in 2011.

Outlook for 2013

Molina expects operating earnings per share of $1.55 in 2013.

Results at Other HMOs

Another health maintenance organization (HMO), WellPoint Inc. (WLP - Analyst Report) reported fourth-quarter 2012 adjusted income of $1.03 per share, beating the Zacks Consensus Estimate of 95 cents. Adjusted income also surpassed the year-ago earnings of 99 cents per share by 4%.

UnitedHealth Group Inc. (UNH - Analyst Report) reported fourth-quarter 2012 earnings of $1.20 per share, in line with the Zacks Consensus Estimate. Earnings, however, increased 2.6% on a year-over-year basis.

Coventry Health Care Inc. reported fourth-quarter 2012 operating earnings per share of 88 cents, which surpassed the Zacks Consensus Estimate of 67 cents as well as the prior-year earnings of 60 cents. Coventry reported net income of $119.3 million compared with $85.7 million in the prior-year quarter.

Zacks Rank

Molina currently carries a Zacks Rank #2 (Buy).

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