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Magellan Health (MGLN) Down 13.5% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Magellan Health (MGLN - Free Report) . Shares have lost about 13.5% in that time frame, underperforming the S&P 500.

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

Magellan Health’s Q3 Earnings Beat, Down Y/Y

Magellan Health’s earnings of $1.45 per share surpassed the Zacks Consensus Estimate by 5.8%, driven by higher revenues. However, the bottom line declined 11.6% year over year.

For the quarter under review, total revenues came in at $1.9 billion, beating the Zacks Consensus Estimate by 0.4%. Moreover, the top line improved 31% year over year, mainly on the back of PBM and Managed Care and other segments.

Quarterly Operational Update

Total costs and expenses declined about 24.2% year over year to $1.4 billion. This improvement was attributable to lower Cost of care, cost of goods sold, deprecation, etc.

Magellan Health’s interest expenses were down 14.8% year over year to $7.6 million.

Segment Results

Healthcare


Profit for this segment was $61.7 million, up 7% year over year. This upside was mainly driven by favorable client settlements, incremental losses in Virginia and the impact of the October 2017 rate reduction in Florida.

Pharmacy

Profit for this segment was$33.6 million, down 13% year over year. This downside was due to a decline in earnings at specialty carve-out business as a result of lost formulary management contracts.

Corporate Segment & Eliminations

Corporate costs inclusive of eliminations but excluding stock compensation expense stands at $7 million, down 17.6% year over year. This is mainly due to costs incurred for Senior Whole Health acquisition.

Financial Update

As of Sep 30, 2018, its cash and cash equivalents soared 70.2% from the level at year-end 2017 to $399 million.

Total assets fell 3% to $2957 million from the tally at 2017 end.

The company’s shareholder equity decreased 4.2% from the figure at year-end 2017.

For the first nine months of 2018, net cash outflow for operating activities stood at $34 million, down 70% year over year. This downtrend is due to the timing of receivable collections from states in the Company’s MCC businesses.

Guidance Down    

Adjusted net income per share is expected in the range of $107-$123 million, down from the prior anticipation of $132-$152 million.

Adjusted EPS is now projected between $4.26 and $4.90, down from the previous expectation of $5.18-$5.96. This is due to utilization pressure on Healthcare business and lower margins in the Pharmacy business.

The company has reiterated its total revenue expectation of $7.3-$7.5 billion for 2018.

The full-year segment profit guidance is now envisioned in the range of $290-$310 million, down from $330-$350 million.

Net income is anticipated within $68-$88 million (down from the past forecast of $93-$117 million).
 

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -41.43% due to these changes.

VGM Scores

Currently, Magellan Health has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Magellan Health has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.




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