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Molina (MOH) Up 10.7% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Molina (MOH - Free Report) . Shares have added about 10.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Molina due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Molina’s Q3 Results Beat, Up Y/Y

Molina Healthcare’s third-quarter 2018 adjusted earnings of $2.90 per share surpassed the Zacks Consensus Estimate of $1.65 by a whopping 75.8%. This upside was driven by the execution of margin recovery along with sustainability plan and an effective performance management. The bottom line also reversed its year-ago period’s loss of $1.70.

For the quarter under review, total revenues came in at $4.6 billion, in line with the Zacks Consensus Estimate. However, the top line declined 6.6% year over year, mainly due to lower premium revenues.

Quarterly Operational Update

Total operating expenses declined about 13.2% year over year to $4.4 billion. This improvement was attributable to lower medical care cost, general and administrative expenses, restructuring and separation costs.

For the third quarter, medical care cost was lowered 10.2% year over year to $3.8 billion.

Molina Healthcare’s interest expenses were down 19% year over year to $26 million.

In the quarter under review, the company sold its Medicaid management information systems (MMIS) business to DXC Technology Company for $233 million.

Financial Update

As of Sep 30, 2018, Molina Healthcare’s cash and cash equivalents saw a reduction of 11.7% from the level at year-end 2017 to $2.8 billion.

Total assets fell 5% to $8.1 billion from the tally at 2017 end.

The company’s shareholder equity improved nearly 17% from the figure at year-end 2017 to $1.5 billion.

For the third quarter, net cash outflow for operating activities stood at $505 million against net cash inflow of $285 million for the same time frame in 2017.

Guidance Revised

Adjusted net income per share is expected in the band of $8.80-$9 (up from the prior guidance of $7.15-$7.35).

The company has reiterated its total revenue expectation of $18.8 billion in 2018.

Medical Care Costs are now predicted at $15.1 billion, lower than the earlier projection of $15.2 billion.

The company still envisions to incur general and administrative expenses of $1.4 billion in 2018 (in line with the preliminary estimate).

Net income is anticipated within $585-$600 million (up from the past forecast of $471-$484 million).

The company’s EBITDA is estimated between $1,105 million and $1,125 million (up from the prior outlook of $968-$985 million).

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 33.74% due to these changes.

VGM Scores

At this time, Molina has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Molina has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.




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