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Molina Healthcare's Top Line Grows on Membership, Debts Hurt

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Molina Healthcare, Inc (MOH - Free Report) continues to grow on membership. Over last few years, aggregate membership consistently increased on the expansion of the Affordable Care Act (ACA). The uptrend in membership continued in the first half of 2017 as well on the back of increased Marketplace-enrollment and the acquisition of Medicaid managed care.

The company’s aggressive inorganic strategies also pave the way for long-term growth. The acquisition of Universal American’s Total Care Medicaid plan in 2016 that substantially boosted the company’s Medicaid business, is worth a mention here.

On the back of membership and inorganic growth, the company’s top line started witnessing consistent growth over the past few years and the trend continued in the first half of 2017 . Solid restructuring and development strategies have also significantly contributed to this top-line appreciation.

In the past six months, the company’s shares have gained 28%, outperforming the industry’s rally of 18%. This reflects shareholders’ optimism in the stock.

However, at the end of the second quarter, it withdrew its 2017 earnings guidance owing to uncertain medical cost trends and uncertainty around the funding of Marketplace cost sharing subsidies. This might put its share price under pressure, going forward.

The company has been witnessing a rise in expenses due to higher medical care costs, over the past few years. Nevertheless, it has recently taken up a restructuring plan to improve its operational efficiency per which, it estimates annualized run-rate expenses to reduce significantly in late 2018.

In addition, its high debt level also raises financial risk as well as interest expenses. Rising interest expenses also hurt its margins.

Molina Healthcare’s Marketplace performance has been most disappointing in Florida, Utah, Washington, and Wisconsin. The uncertain future of ACA also affects the exchange business adversely.

Zacks Rank and Key Picks

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

Investors interested in this space can also consider stocks like Aetna, Inc (AET - Free Report) , Anthem, Inc. (ANTM - Free Report) and Amedisys Inc (AMED - Free Report) . All the three stocks carry a Zacks Rank #2 (Buy).

Aetna’s earnings surpassed expectations in each of the last four quarters with an average beat of nearly 19%.

Anthem delivered positive surprises in three of the last four quarters with an average beat of 8.6%.

Amedisys delivered positive surprises in three of the last four quarters with an average beat of 7.2%

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