In an effort to enhance its shareholder value, the board of Molina Healthcare Inc. (MOH - Analyst Report) approved a new share buyback program worth $50 million, effective from Sep 30, 2013 through Dec 31, 2013.
On the back of this repurchase program, the share price of Molina increased by nearly 1.1% to $36.71 per share on Oct 4, 2013 from $36.32 recorded at the end of Oct 3, 2013.
Molina’s new share buyback has replaced its prior buyback program of $75 million, sanctioned in Feb 2013 and extended till Dec 2014. In the very first month of its approval, the company repurchased $50 million worth of shares.
The company plans to fund the new repurchase with its available cash balance. Molina’s solid financials assist the company to fund its buyback program. It exited the second quarter of 2013 with cash and cash equivalents of $742.7 million.
Share repurchases benefit the company’s earnings per share, book value as well as shareholder equity, as the buyback activity lowers share count. Meanwhile, Molina continues to concentrate on expanding its revenue and operating income, both of which gained modest improvement during the second quarter of 2013.
However, no earnings momentum has been witnessed over the last 7 days. As a result, the Zacks Consensus Estimate for 2013 and 2014 remained intact at $1.62 and $1.28 per share, respectively. Nevertheless, we expect that the news of the new buyback authorization will encourage analysts to pull up their estimates, providing upward pressure on the stock in the near term.
Molina Healthcare presently carries a Zacks Rank #3 (Neutral). Among better-performing players in the insurance space, Aetna Inc. (AET - Analyst Report) , Magellan Health Services Inc. (MGLN - Snapshot Report) and Health Net, Inc. carry a Zacks Rank #2 (Buy), and appear impressive.