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Molina Healthcare (MOH) Up 52.5% in a Year: More Room to Run?

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Molina Healthcare, Inc. (MOH - Free Report) has been favored by investors on the back of healthy revenue and strategic measures.

The company has witnessed its 2020 and 2021 earnings estimate move 2.1% and 0.1% north, respectively, reflecting investors' optimism on the stock.

Shares of this presently Zacks Rank #3 (Hold) company have surged 52.5% in a year, outperforming its industry’s increase of 5%.

Other companies in the same space, such as HCA Healthcare, Inc. (HCA - Free Report) , Acadia Healthcare Company, Inc. (ACHC - Free Report) and Tenet Healthcare Corporation (THC - Free Report) have gained 11.3%, 49.1 and 6%, respectively. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Its return on equity — a profitability measure — is 43.2%, better than the industry average of 24.5%. The metric reflects the company’s effectiveness in utilizing its shareholders’ money, which impresses investors.

The leading health insurer has been witnessing a healthy revenue stream for several years now. In the first nine months of 2020, the same rose 13% year over year. We are hopeful that the company’s top line will continue growing on the back of its strategic initiatives and higher memberships.
Molina Healthcare took up a restructuring initiative back in 2017. The plan included streamlining of its organizational structure to improve efficiency as well as the speed and quality of decision-making. As part of this measure, the company even divested some of its units, which is expected to help it focus on its core growth areas.

The company’s membership is expected to rise steadily on the back of contract wins and strategic initiatives.

Following third-quarter results, management reaffirmed its outlook for the current year. It expects earnings in the range of $11.20-$11.70 per share. The company raised its 2020 total revenue outlook to $19.6 billion, up from its prior projection of $18.8 billion. This was owing to the Passport buyout in Kentucky and the novation of its Medicaid contract to Molina on Sep 1.

Inorganic profile always paved the way for the company’s growth. It inked a deal to acquire the Magellan Complete Care (MCC) line of business of Magellan Health, Inc. for $820 million. The transaction will serve more than 3.6 million members under government-sponsored healthcare programs across 18 states. With this addition, the company is expected to build a better portfolio and gain an enhanced geographic diversity, etc. It also struck a deal to buy substantially all the assets of Affinity Health Plan, Inc. in September 2020. The acquisition could provide up to $600 million of revenues for 2021. All these initiatives poise the company well for growth.

Further Upside Left?

We believe, the company’s various strategic efforts bode well for the long haul.

The stock carries an impressive VGM Score of A. Here V stands for Value, G for Growth and M for Momentum with the score being a weighted combination of all three factors.  

The Zacks Consensus Estimate for the company’s 2021 earnings indicates an improvement of 8.6% from the year-ago reported figure.

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