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Bull of the Day: Magellan Health (MGLN)

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When a company can improve revenues, cut costs, make strategic acquisitions, and maintains a robust share repurchase program, they tend to pop up on the Zacks Rank #1 list.  This is the case with our Zacks Bull of the Day, Magellan Health .  

This Zacks Rank #1 (Strong Buy) company engages in the healthcare management business in the United States. The company’s Healthcare segment engages in the management of behavioral healthcare services and employee assistance program services; management of other specialty areas, including diagnostic imaging and musculoskeletal management; and the integrated management of physical, behavioral, and pharmaceutical healthcare for special populations comprising individuals with serious mental illness, dual eligibles, long-term services and supports, and other populations with unique and often complex healthcare needs. The company provides services to health plans and other managed care organizations, employers, labor unions, various military and governmental agencies, and third party administrators.

Recent Earnings Results

Management announced Q3 earnings results in early November where they almost doubled the Zacks consensus earnings estimate, and easily beat the Zacks consensus revenue estimate as well.  Specifically, the company reported year over year increases in Net revenues +8.6%, Segment profit +49.7%, Adjusted net income +76.2%, and Adjusted EPS +82.9%.  According to management, the massive upticks in Q3 were attributable to same store growth, and new businesses (they recently acquired the Armed Forces Services Corp, and The Management Group).  Lastly, as of September 30th, MGLN had unrestricted cash and investments of $233.8 million.  

Due to the extremely strong quarterly performance, management increased FY 2016 guidance for revenues, EPS, and segment profit; 2016 revenue guidance was raised from $4.76-5.0 billion to $4.78-5.02 billion, EPS guidance was increased from $1.99-2.77, to $2.86-3.24, and segment profit guidance was elevated from $271-291 million to $295-305 million.  

Then on November 22 management upgraded their 2017 financial guidance because of strong growth in both their healthcare and pharmacy divisions.  Management increased 2017 guidance for revenues, diluted EPS, and Adjusted EPS; revenues were increased from $5.2 billion to $5.79-6.095 billion, diluted EPS was raised from $3.73 to $3.80-4.81, and Adjusted EPS was increased from $4.91 to $5.19-6.12.  

Management’s Take

According to Barry M. Smith, Chairman and CEO, “Over the past three years, we’ve discussed our goal of becoming a company which consistently produces top and bottom line growth, and improves health outcomes and affordability for the members and customers we serve. We have made much progress toward this objective, and as a result, we are well positioned for sustainable long-term growth. Through the successful execution of our strategy, our 2017 guidance represents the third consecutive year of segment profit growth for Magellan.”

Price and Consensus Graph

As you can see in the graph below, both the company’s stock price, and that future earnings expectations have risen as of late. 

MAGELLAN HLTH Price and Consensus

MAGELLAN HLTH Price and Consensus | MAGELLAN HLTH Quote

Increasing Estimates

Due to the increase in guidance for FY 16, and FY 17, earnings estimates for Q4 16, FY 16, Q1 17, and FY 17 have all seen significant upgrades over the past 30 days; Q4 16 jumped up from $1.00 to $1.37, Q1 17 improved from $0.71 to $0.80, FY 16 leaped up from $2.38 to $3.15, and FY 17 rose from $3.25 to $4.30.

Bottom Line

With management increasing guidance for both 2016 and 2017, future expectations are now very high for MGLN.  Commenting about 2017, Jonathan Rubin, CFO, stated, “As reflected in our guidance, our projected growth in segment profit comprises continued strong growth in our pharmacy business, meaningful performance improvement in MCC and growth in our healthcare business. We look forward to executing on our 2017 plan and making further strides towards achieving our long-term growth objectives.”

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