Back to top

Analyst Blog

On May 9, 2013, shares of Molina Healthcare Inc. (MOH - Analyst Report) reached a 52-week high of $35.98. The momentum was driven by the company’s strong earnings in the first quarter of 2013, which included a 146.2% positive earnings surprise.

Molina reported first-quarter 2013 net earnings per share of 64 cents, significantly surpassing the Zacks Consensus Estimate of 26 cents. Moreover, earnings per share increased from the year-ago quarter number of 39 cents.

Total revenue for the reported quarter climbed to $1.59 billion from $1.37 billion in the prior-year quarter. Molina’s total revenue came in line with the Zacks Consensus Estimate.

Operating income and medical care ratio also improved. Molina has maintained a strong track record of earnings, with positive earnings surprise in 9 out of the last 10 quarters.

Going ahead, the uptrend in premium and service revenues along with improving membership and operating cash flow are expected to drive growth. Additionally, the strategy of expansion via acquisitions is aiding the Medicaid health plan business.

However, the valuation of Molina looks stretched. The shares are trading at a premium to its peers both on a price-to-book and forward price-to-earnings basis, while the return on equity of 2.9% is lower than the peer group average of 9.7%. The year to date return from the stock is 32.9%, much above S&P’s return of 14.1%.

Molina currently carries a Zacks Rank #2 (Buy). Other health maintenance organizations worth considering are Aetna Inc. (AET - Analyst Report), Health Net Inc. (HNT - Analyst Report) and Humana Inc. (HUM - Analyst Report). All these companies carry a Zacks Rank #2 (Buy).