Molina Misses by a Penny, Lowers Guidance - Analyst Blog

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Molina Healthcare Inc. ( MOH ) reported third-quarter 2013 operating earnings per share of 31 cents that missed the Zacks Consensus Estimate by a penny. However, earnings per share surpassed the year-ago quarter's earnings of 8 cents per share.

Including stock-based compensation of 15 cents per share, net income for the quarter came in at 16 cents per share compared to 7 cents per share in the prior-year quarter.

Total revenue for Molina for the reported quarter climbed 9.5% to $1.69 billion from $1.54 billion in the prior-year quarter. However, total revenue missed the Zacks Consensus Estimate of $1.71 billion.

Premium revenues improved 9% year over year to $1.6 billion due to higher enrollment and revenue per member per month (PMPM). Moreover, Molina's service revenues increased to $43.7 million from $37.9 million in the year-ago quarter.

Additionally, rental and other income increased to $5.9 million in the quarter from $4.1 million in the year-ago quarter. Further, Molina's investment income increased to $1.7 million from $1.2 million a year ago. Premium tax receipts also increased to $43.7 million from $37.9 million in the third quarter of 2012.

Total expenses of Molina increased 8.1% year over year to $1.7 billion. The increase was driven by general and administrative (G&A) expenses that escalated to $176.2 million from $127.03 million, cost of service revenues that increased to $40.1 million from $37 million, premium tax expenses that hiked to $43.7 million from $37.9 million in the prior-year quarter, depreciation and amortization (D&A) costs that increased to $18.9 million from $15.9 million, and medical care costs that expanded to $1.4 billion from $1.3 billion in the prior-year quarter.

Operating income was $24.9 million in the reported quarter compared to $2.4 million in the comparable prior-year quarter, due to higher medical margins.

Additionally, Molina's interest expense jumped to $13.5 million from $4.3 million in the year-ago quarter. Further, medical care ratio (ratio of medical care costs to premium revenue) improved 380 basis points to 87.3% from 91.1% in the year-ago quarter due to better operating performance in most health plans, except for one.

Financial Update

Molina exited the second quarter with cash and cash equivalents of $856.6 million, down from $795.8 million at 2012 end. During the reported quarter, cash from operations amounted to $223.5 million, compared to $28.04 million in the prior-year quarter.

At the end of Sep 2013, total assets increased to $2.9 billion from $1.93 billion at 2012 end. Meanwhile, Molina's shareholder equity increased to $892.8 million from $782.3 million as of Dec 31, 2012.

Share Repurchase Update

On Oct 3, 2013, the board of Molina approved a new share buyback program worth $50 million, effective from Sep 30, 2013 through Dec 31, 2013. Molina's new share buyback has replaced its prior buyback program of $75 million, sanctioned in Feb 2013 and extended till Dec 2014. In the very first month of its approval, the company repurchased $50 million worth of shares.

Outlook

Molina expects operating earnings per share for full year 2013 to be $1.15 per share, down from the previously provided guidance of $1.55. The reduced outlook came on the back of costs 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.  A further delay in the commencement of the revenue streams that will finance the rising G&A expense is also taken into account in the reduced guidance.

Meanwhile, Molina expects to break even in the fourth quarter.

Adjusted net income per share is expected to be approximately $3.20 per share for the full-year 2013.

Our Take

Molina's third quarter earnings missed the Zacks Consensus Estimate but improved year over year. Top line also suffered the same fate. However, the year-over-year increase in revenues being more than that of expenses led to a margin expansion.

However the increased trend in expenses and an anticipated increase in costs associated with the construction of infrastructure, preparations for significant membership growth in 2014 in connection with the Affordable Care Act, etc. resulted in a lowered guidance on part of the company.

Others

Aetna Inc. ( AET ) reported third-quarter 2013 earnings of $1.50 per share, down 3 cents per share from the Zacks Consensus Estimate of $1.53 per share.

Magellan Health Services Inc. ( MGLN ) reported third-quarter 2013 operating net income of $1.70 per share, surpassing the Zacks Consensus Estimate significantly by 68.3%.

WellPoint Inc. ( WLP ) reported third-quarter 2013 adjusted income of $2.10 per share, beating the Zacks Consensus Estimate of $1.83 per share.

Zacks Rank

Molina currently carries a Zacks Rank #3 (Hold).



AETNA INC-NEW (AET): Free Stock Analysis Report

MAGELLAN HLTH (MGLN): Free Stock Analysis Report

MOLINA HLTHCR (MOH): Free Stock Analysis Report

WELLPOINT INC (WLP): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: AET , MGLN , MOH , WLP

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