Molina Healthcare Inc.
) reported fourth quarter operating earnings of 51 cents per share,
which surpassed the Zacks Consensus Estimate of 39 cents. However,
results lagged operating earnings of 58 cents in the year-ago
Including a $1.34 per share non-cash Missouri health plan
impairment charge, a 21 cent income related to contract amendment
and a 10 cent cost related to acquisition-related arbitrage
settlement and provider termination, operating loss for the
reported quarter amounted to 72 cents.
Net loss for the quarter came in at $33 million or 72 cents per
share, compared to a net income of $17.6 million or 39 cents per
share in the prior-year quarter. Results benefited from increased
premium, service revenues and increased memberships. However, this
growth momentum was muted by increased expenses and higher medical
Total revenue for the reported quarter climbed to $1.31 billion
from $1.08 billion in the fourth quarter of 2010. Molina will defer
the recognition of any revenue or recoverable direct cost in Idaho
till the Medicaid Management Information System in the state
receives certification from the Centers for Medicare and Medicaid
Premium revenues augmented 20.3% year over year to $1.25
billion, primarily due to a 14.7% per-member-per-month (PMPM)
revenue increase, aided by a membership growth (on the basis of
member-month) of 4.9%. Moreover, Molina's service revenue jumped to
$49.2 million from $36.5 million in the year-ago quarter, while
investment income increased to $1.74 million from $1.38 million.
Additionally, the company recorded a rental income of $0.55 million
in the reported quarter. Medicare premium revenue for the reported
quarter spiked to $105.9 million from $76.5 million in the year-ago
Total operating expenses also climbed 20.2% year over year to
$1.26 billion, primarily driven by general and administrative
(G&A) expenses that rose to $125.0 million from $100.4 million,
cost of service revenue that increased to $39.0 million from $36.8
million and premium tax expenses that escalated to $44.0 million
from $35.2 million in the prior-year quarter. However, depreciation
and amortization (D&A) costs declined to $12.1 million from
$12.5 million in the prior-year quarter. Additionally, interest
expense increased to $3.9 million from $3.5 million in the year-ago
quarter, mainlydue to a $48.6 million term loan taken in
Medical care costs increased to $1.04 billion from $862 million
in the fourth quarter of 2010, although medical care ratio (ratio
of medical care costs to premium revenue) remained almost flat at
82.7%. Besides, total medical care costs increased 15% on a PMPM
Full-Year 2011 Highlights
For full-year 2011, Molina reported operating income of $1.82
per share, which surpassed the Zacks Consensus Estimate of $1.55
but lagged $1.98 earned in 2010. Operating income for 2011 excludes
a $1.34 per share non-cash Missouri health plan impairment
charge, a 7 cent income related to contract amendment and a 10 cent
cost related to acquisition-related arbitrage settlement and
Molina's total revenue amounted to $4.8 billion in 2011, showing
a modest year-over-year increase from $4.1 billion. Moreover,
premium revenue came in at $4.6 billion, up 15% year over year from
Additionally, total expenses increased to $4.6 billion from $4.0
billion. Net income came in at $20.8 million or 45 cents per share,
compared with $55.0 million or $1.32 per share in 2010.
Molina exited 2011 with $893.0 million in cash and investments,
while the parent company had cash and investments of $23.6 million.
At the end of the year, Molina's total assets increased to $1.65
billion from $1.51 billion at 2010-end, while shareholders' equity
elevated to $755.1 million from $719.1 million.
In 2011, cash flow from operations increased to $225.4 million
from $161.4 million in 2010. The huge difference is attributed to
deferred revenue expenses of $8.2 million in 2011, compared with
$41.9 million in 2010.
On December 7, 2011, Molina purchased Molina Center, an office
building in California, for $81 million. The purchase consideration
was paid out of a $48.6 million term loan, while the remaining
$32.4 million was paid from the company's cash balance.
Management lowered the earnings per share guidance for fiscal
2012 to $1.75 per share from $1.80 projected in January 2012.
Molina's earnings before interest, taxes, depreciation and
amortization (EBITDA) are expected to be about $213 million, while
income before tax is predicted to be $133 million.
Meanwhile, total revenue is expected to be around $6.0 billion.
Total revenue comprises premium revenue, service revenue and
investment income, which are predicted to be $5.8 billion, $185
million and $6 million, respectively.
On the expense side, medical care costs are expected to be
approximately $5.0 billion. Meanwhile, service costs are projected
to be $158 million and G&A expenses are likely to be $464
million. Additionally, Molina projects depreciation and
amortization to be about $35 million and $15 million, respectively,
while it anticipates that interest expense would be around $17
Furthermore, the company estimates premium tax expense to be
$169 million along with an effective tax rate of 38%. As a result,
net income is projected to be $83 million.
In terms of ratios, Molina expects medical care ratio to be 86%
in 2012. Additionally, service revenue ratio is projected to be 85%
and G&A ratio is projected to be 7.8%.
Outstanding shares are expected to increase to 47.3 million at
2012-end from 46.4 million as of December 31, 2011.
Molina witnessed a year-over-year deterioration in operating
results, despite substantial premium growth. The company also
delivered significant revenue growth and record high cash flows,
which led to a stronger balance sheet.However,rising medical costs
are leading to margin compression. Besides, higher operating
expenses pose a risk to the company's operating leverage.
Nevertheless, we believe that thesteady increase in premium
revenues and membership growth will drive earnings in
future.Additionally,the company's efficient growth strategy through
acquisitions and a strong portfolio beyond managed care will likely
attract long-term investors. However, the company needs to
implement some cost control measures.
UnitedHealth Group Inc.
) declared its fourth-quarter 2011 earnings of $1.17 per share,
substantially higher than the Zacks Consensus Estimate of
Coventry Health Care Inc.
) reported fourth-quarter 2011 operating earnings per share of 58
cents, which lagged the Zacks Consensus Estimate of 64 cents as
well as 96 cents reported in the year-ago quarter.
Molina currently carries a Zacks #2 Rank, implying a short-term
'Buy' rating. Considering the fundamentals, we maintain a long-term
'Outperform' recommendation on the shares.
COVENTRY HLTHCR (
): Free Stock Analysis Report
MOLINA HLTHCR (
): Free Stock Analysis Report
UNITEDHEALTH GP (
): Free Stock Analysis Report
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