Back to top

Analyst Blog

Zacks Equity Research

Will Rising Medical Costs Limit Molina Healthcare's Growth?


Trades from $3

On Sep 23, 2016, we issued an updated research report on Molina Healthcare Inc. (MOH - Analyst Report)

The California-based multi staged managed care organization enjoys a monopoly in government-sponsored healthcare programs. The company’s strong performance in the recent past is clearly evident from its posting average beat of 2.09% over last four quarters.

Despite a volatile global economic environment, Molina Healthcare has continued to create value for shareholders by effectively utilizing the existing domestic business exposure.

Molina Healthcare has been witnessing robust growth in two of the major components of its revenue mix – premiums and service revenues – mainly due to the persistently growing membership. The major contribution of this growing membership was increasing premiums and service revenues substantially. The company presently expects $560 million in service revenues in 2016, which translates into year-over-year growth of 121.3%

Molina Healthcare’s inorganic growth was primarily driven by in-market or tuck-in acquisitions. In fact, the year 2015 was deemed the most active in terms of M&A (Mergers & Acquisition). The company acquired Universal American Corp.’s (UAM - Snapshot Report) Total Care Medicaid plan and agreed to acquire certain Medicare Advantage assets from both Aetna Inc. (AET - Analyst Report) and Humana Inc. (HUM - Analyst Report) in 2016. Through these strategic acquisitions, the company progresses on its target to better serve the complex needs of patients. We expect this patient-centric approach to eventually bolster the top line of Molina Healthcare.

Molina Healthcare’s strong financial position is supported by its improving cash inflow. Molina Healthcare has been prudently managing its capital in order to enhance shareholders’ value. Capital deployment initiatives like share buybacks and dividend payouts at regular intervals have cemented investors’ confidence on this stock.

However, rising medical care costs have been putting margins under pressure and hence, remain an area of concern for Molina Healthcare. The increased expenses mainly stemmed from higher utilization factors and were most evident in connection with physician and outpatient costs. Dependence on debt financing is a negative as this leads to an increase in interest expenses.

Molina Healthcare presently carries Zacks Rank #3 (Hold).  You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Confidential from Zacks

Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>