On Dec 3, 2013 we downgraded managed care organization,
Molina Healthcare Inc.
) to Underperform, due to lack of significant growth catalyst and
higher expenses that impel reduced earnings guidance.
Molina carries a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
Molina's third quarter revenues of $1.69 billion as well as EPS
of 31 cents missed the Zacks Consensus Estimates of $1.71 billion
and 32 cents, respectively. Full year 2013 earnings guidance
(lowered to $1.15 per share from $1.55, guided earlier) was also
disappointing. Meanwhile Molina expects to break even in the
fourth quarter. The company also posted negative earnings
surprise in the third quarter.
Molina has been incurring rising medical care costs which are
adversely affecting margins. The first nine months of 2013 was
also no exception. As a result operating expenses ascended,
leading to a margin contraction. The reduced 2013 earnings
guidance also takes into account higher costs that are expected
to be incurred for the continuous infrastructure build out costs,
costs to implement enhanced care coordination and medical
management, and increased advertising and marketing costs.
Also, upcoming changes like a ban on annual and lifetime coverage
caps, annual fees on health insurance companies and excise tax on
high premium insurance policies, will likely increase expenses
further. Moreover the low interest rate environment has been
dragging down investment income of the company and thus Molina
needs to hedge its investment portfolio from market fluctuations
to prevent further decline.
Moreover, Molina is exposed to losses related to delays in
enrollment and delays in implementation of programs that are
expected to increase administrative costs significantly. Delay in
the commencement of the revenue streams that will finance the
rising G&A expense is also taken into account in the reduced
Other Stocks to Consider
Some better-ranked healthcare service providers include
VCA Antech Inc.
Addus HomeCare Corporation
Acadia Healthcare Company Inc.
). While Addus carries a Zacks Rank #1 (Strong Buy), VCA Antech
and Acadia Healthcare carry a Zacks Rank #2 (Buy).
ACADIA HEALTHCR (ACHC): Free Stock Analysis
ADDUS HOMECARE (ADUS): Free Stock Analysis
MOLINA HLTHCR (MOH): Free Stock Analysis
VCA ANTECH INC (WOOF): Free Stock Analysis
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