We are maintaining our Neutral recommendation on
Molina Healthcare Inc.
) based on increased membership, higher premium and service
revenues, record-high operating cash flows and a strong financial
position. However, we remain cautious about the rising medical
costs. Underperformance in the prime Texas market is also a big
Molina reported first-quarter 2012 earnings per share of 39
cents, which was a penny ahead of the Zacks Consensus Estimate as
well as the year-ago earnings. Net income for the quarter came in
at $18.1 million, compared with $17.4 million in the prior-year
Molina has been witnessing a steady increase in premium revenues
over the past several quarters. Premium revenue increased to $4.60
billion in 2011 from $2.46 billion in 2007. Moreover, the increased
premium rates in Florida and Michigan will positively impact
revenue in 2012.
Additionally, the Ohio Department of Job and Family Services'
ruling in favor of Molina and its endorsement of a new Medicaid
managed care provider agreement to the company will prevent a
decline of 248,000 in enrollment and a loss of $988.9 million in
Molina's strong revenues earned it a place on the 2012 Fortune
500 list. Expansion of the membership base is a prime reason for
the increase in revenue. Aggregate membership increased 11% from
the first quarter of 2011, and currently Molina serves nearly 1.8
million members. Additionally, the company's enrollment in the
Medicare special needs plan, for dual-eligible members, is the
eighth-highest in the U.S.
However, Molina lost a couple of important Medicaid contracts
recently, which are expected to substantially reduce its membership
base, thereby hampering revenue growth. Loss of the Missouri
Medicaid contract is expected to reduce membership by about
Moreover, higher-than-expected medical claims in Texas have led
to the withdrawal of Molina's 2012 earnings guidance as well as a
medical cost ratio (MCR) of 120% for the STAR+PLUS plan in the two
new Texas markets - Hidalgo and El Paso.
This means that the premium revenues from these markets are not
enough to cover the medical costs, thus leading to losses. High MCR
in the new markets also increased the MCR for Texas to about 100%,
while the MCR for the rest of the state is around 93%.
Molina competes with
UnitedHealth Group Inc.
). The company currently carries a Zacks #3 Rank, implying a
short-term 'Hold' rating.
MOLINA HLTHCR (MOH): Free Stock Analysis Report
UNITEDHEALTH GP (UNH): Free Stock Analysis
WELLPOINT INC (WLP): Free Stock Analysis Report
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