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Here's What Makes Molina Healthcare (MOH) an Attractive Bet

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Molina Healthcare, Inc. (MOH - Free Report) should gain from the recent mid-term elections, which saw the Democratic party gaining control of the House of Representatives. This  means that chances of the repeal of Obamacare, as sought by the Republican party over the past two years has dimmed. It also implies that changes to health insurance exchanges (HIX) and Medicaid expansion will be off the table.

Moreover, Medicaid expansion has been approved in the three states of Nebraska, Idaho, and Utah, covering around 300,000 low-income people. Molina Healthcare should gain from Medicaid expansion in Utah along with the proposed expansion in Wiconsin.

Molina Healthcare primarily deals in Government health insurance plans such as Medicaid, Medicaid etc. As of Sep 30, 2018, the company’s Medicaid membership (3.515 million) was 88% of its total membership. The Medicaid business generated 77% of the company’s total premium in the first nine months of 2018. Since 2014, (when Medicaid expansion came into effect) through Sep 30, 2018, the company’s membership from Medicaid expansion has grown  to 664,000 from 385,000. Therefore expansion in Medicaid business bodes well for Molina Healthcare.

Moreover, Molina Healthcare’s revenues have an exposure of nearly 9% to HIX. The company’s Marketplace business is now stable after years of corrective pricing actions and instability. It is now producing after-tax margins of 9% to 10%. The Marketplace business is a significant part of the company’s overall margin recovery story. Thus stabilization in the Marketplace business across the industry should aid Molina Healthcare’s revenues.

Apart from industry specific and regulatory factors, the company is gaining from the margin turnaround initiatives taken at the start of the year. The company’s results for the first nine months of 2018reflected continued improvement in its business performance and the significant progress made in executing margin recovery and sustainability plan, which saw total expenses come down by 12%. The company also recently sold its business Molina Medicaid Solutions to focus on core growth areas and to use funds for deleveraging, thus strengthening its balance sheet.

The company has also raised its full-year guidance to a range of $8.80 to $9.00 per diluted share, marking an increase of $1.65 on a GAAP basis and an increase of $2.60 on a non GAAP basis at the midpoint from its previous guidance issue on Aug 1.

This increase has been driven by better medical cost control, better-than-expected performance in Marketplace business and steady performance of its Medicaid product.

All in all, Molina Healthcare is well poised for growth due to both company-specific and industry-related factors. The stock has gained a good 67% in a year’s time, handily outperforming the industry’s growth of 28%.

We believe this Zacks Rank #1 (Strong Buy) stock is further poised for growth given its strong fundamentals.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Other stocks worth mentioning are UnitedHealth Group Inc. (UNH - Free Report) , Anthem Inc, (ANTM - Free Report) and Humana Inc. (HUM - Free Report) . Each of these stocks carries a Zacks Rank #2 (Buy) and has surpassed the Zacks Consensus Estimate in each of the four reported quarters, with an average positive surprise of 3.67%, 5.11% and 4.73%, respectively.

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