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Molina Healthcare's Buyout Deal to Boost Its Base in Kentucky

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Molina Healthcare, Inc. (MOH - Free Report) entered into a definitive agreement to buy certain assets of the Medicaid and DSNP lines of business of Passport Health Plan ("Passport").

The deal priced at $20 million along with contingent consideration due in 2021, based on Molina Healthcare’s Kentucky Health Plan’s open enrollment results in 2020, will be paid in cash.

Subject to closing conditions, the acquisition is expected to be completed before this year-end.

This new buyout will enable Molina Healthcare to boost its operational efficiency and promote continuity of care for members in advance of Molina Healthcare’s new contract award in the Kentucky Medicaid market.

Rationale Behind the Deal

As part of the pact, the company will buy the Passport name, which is an established and reputed brand in Kentucky. This is also expected to drive career opportunities for nearly 500 Kentucky-based Passport and Evolent Health staff.

The decline in health plan startup costs and a positive margin effect owing to incremental revenues will likely help this leading insurer recover the purchase price from positive cash flow within the initial year of the acquisition.

Tying up with such a well-known brand is expected to help Molina Healthcare gain a decent share in the Kentucky market. In June, management announced that its Kentucky health plan subsidiary was awarded a new Medicaid managed care contract. The new agreement is likely to benefit enrollees under the company’s Medicaid programs in Kentucky.

Molina lent a nod to operate the Passport Health Plan with immediate effect from obtaining the regulatory approval is obtained with management and transition support services to be provided by Passport and its majority owner Evolent Health Inc. until the current year-end.

Various other initiatives, such as contract wins and acquisitions bode well for the company's Medicaid line of business.

The healthcare provider inked a deal worth $820 million this April to acquire Magellan Complete Care (MCC), which is yet another managed care organization. With this addition, the company is expected to build a stronger portfolio and gain an enhanced geographic diversity, etc., which in turn, will allow it to launch Medicare and Marketplace in new Medicaid regions.

Also, the Health Maintenance Organization industry, to which Molina Healthcare belongs, remains well-poised to benefit from solid demand for health insurance products owing to a high percentage of aging population in the United States.

In 2019, the company’s Medicaid business contributed to 77% of its total premium revenues.  We expect such moves to further expand contribution from the Medicaid line of business to Molina Healthcare’s total revenues.

Zacks Rank and Price Performance

Shares of this presently Zacks Rank #2 (Buy) company have rallied 27.1% in a year compared with the industry’s growth 7.8%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other companies in the same space, such as Humana Inc. (HUM - Free Report) , UnitedHealth Group Incorporated (UNH - Free Report) and Centene Corporation (CNC - Free Report) , have also gained 41.6%, 20.9% and 24.3%, respectively, in the same time frame. While both Humana and Centene currently carry a Zacks Rank #3 (Hold), Anthem has the same Zacks Rank as Molina Healthcare at present.

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