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Molina (MOH) Stock Surges 34% in a Year: More Room to Run

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Molina Healthcare, Inc (MOH - Free Report) has been in investors’ good books on the back of a solid revenue stream and restructuring strategies.

In 2018, net income came in at $10.61 per share against net loss of $9.07 in 2017. This upside can mainly be attributed to a decline in the medical care ratio and the general and administrative expense ratio.

In a year’s time, this Zacks Rank #1 (Strong Buy) company has rallied 34% versus its industry’s dip of 2.5%. Moreover, it has witnessed its 2020 earnings estimates move north over the past seven days.

Its return on equity — a profitability measure — stands at 49.2%, higher than the industry's average of 23.1%.

The stock carries an impressive VGM Score of A. Here V stands for Value, G for Growth and M for Momentum with the score being a weighted combination of all three factors.  

We expect the momentum to continue as it gains from the following factors:

Promising Top Line: The company has seen consistent growth in its revenue base over the past several years (CAGR of 27.4% from 2012-2017). Although the metric decreased to some extent last year due to both lower premium revenues and premium tax revenues, the same again rose 11.3% in the first quarter of 2019. The top-line boost is primarily attributable to the company’s premium revenues, which have grown consistently over the past many years. Given the restructuring plans and developmental strategies, we expect revenues to augment steadily going forward. For 2019, the company’s total revenues are projected at $16.4 billion, higher than the previous expectation of $16.3 billion.

Restructuring Initiative:  Molina has been gaining from the restructuring and profitability improvement plan, which started in 2017. The plan included streamlining of organizational structure to improve efficiency as well as the speed and quality of decision-making. This endeavor has led to a total expense decline by 13.2%, each in 2018 and during the first quarter of 2019. As part of this effort, the company sold its units — Pathways Health and Community Support, LLC and Molina Medicaid Solutions — which will help it focus on the core growth areas.

Reduced Debt Level: In 2018, the company managed to lower its long-term debt level by 22.6% year over year. As a result, interest expenses of the company also declined to some extent, which remains a positive for the company.

The Zacks Consensus Estimate for current-year earnings is pegged at $10.93, indicating an increase of 3% from the year-ago reported figure.

For 2020, the Zacks Consensus Estimate for earnings stands at $11.78 on $17.77 billion revenues, implying a respective 7.7% and 8.4% improvement from the prior-year reported numbers.

Other Key Picks

Investors interested in the medical sector can also take a look at some other top-ranked stocks like WellCare Health Plans, Inc. (WCG - Free Report) , UnitedHealth Group Incorporated (UNH - Free Report) and HCA Healthcare, Inc. (HCA - Free Report) . You can see the complete list of today’s Zacks #1 Rank stocks here.

WellCare Health offers managed care services to government-sponsored health care programs. The company pulled off average positive surprise of 13.52% in the preceding four quarters. It sports a Zacks Rank of 1.

UnitedHealth works as a diversified health care company and carries a Zacks Rank #2 (Buy). It came up with average four-quarter positive surprise of 3.27%.

HCA Healthcare provides health care services. In the last four quarters, the company delivered average beat of 15.74%. It is a Zacks #1 Ranked player.

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