Molina Healthcare Inc.
) reported second-quarter 2012 net loss per share of 80 cents,
which was far behind the Zacks Consensus Estimate of earnings of 4
cents as well as the year-ago earnings of 38 cents. Net loss for
the quarter came in at $37.3 million compared to net income of
$17.4 million in the prior-year quarter.
Total revenue for the reported quarter climbed to $1.54 billion
from $1.17 billion in the second quarter of 2011. Total revenue
also surpassed the Zacks Consensus Estimate of $1.50 billion.
Premium revenues surged 32% year over year to $1.49 billion,
primarily due to membership growth, favorable change in membership
mix and impact of benefit expansion. Moreover, Molina's service
revenue jumped to $41.7 million from $36.9 million in the year-ago
quarter, although investment income decreased to $1.1 million from
$1.4 million a year ago. Additionally, the company recorded a
rental income of $1.3 million in the quarter.
Total expenses also climbed 40.6% year over year to $1.6
billion, primarily driven by medical care costs that escalated to
$1.38 billion from $0.949 billion in the prior-year quarter,
general and administrative (G&A) expenses that rose to $131
million from $97 million, depreciation and amortization (D&A)
costs that increased to $16 million from $12 million and premium
tax expenses that improved to $40 million from $38 million in the
prior-year quarter. However, cost of service revenue declined to
$31 million from $39 million in the prior-year quarter.
Additionally, interest expenses increased to $3.8 million from
$3.7 million in the year-ago quarter. Further, medical care ratio
(ratio of medical care costs to premium revenue) surged to 92.3%
from 84.1% in the year-ago quarter.
Operating loss was $59 million in the reported quarter compared
to earnings of $31 million in the comparable quarter of 2011.
Molina exited the reported quarter with $1.1 billion in cash and
investments, while the parent company had cash and investments of
$39.8 million. At the end of the quarter, Molina's total assets
increased to $1.92 billion from $1.65 billion at 2011 end, although
shareholders' equity declined to $746.0 million from $755.1
During the reported quarter, cash flow from operations spiked up
to $185 million from $31 million in the prior-year quarter. The
huge difference is attributed to deferred revenue of $81 million in
the reported quarter, compared with negative referred revenue of
$25 million in the year-ago quarter.
UnitedHealth Group Inc.
), declared its second-quarter 2012 earnings of $1.27 per share, up
9% over the year-ago quarter.
Coventry Health Care Inc.
) reported second-quarter 2012 operating earnings per share of 68
cents, which surpassed the Zacks Consensus Estimate of 64 cents but
was lower than the prior-year earnings of 83 cents.
Molina's financial result showed a sharp deterioration in the
reported quarter, mainly due to higher-than-expected medical claims
in Texas along with losses in Missouri and Wisconsin. Dismal
performance in the new markets in Texas - Hidalgo and El Paso -
also prompted the company to withdraw its 2012 earnings per share
guidance in June 2012.
Operating results in the reported quarter were disappointing
despite substantial revenue growth, as the improvement was offset
by higher operating expenses. High operating expenses pose a risk
to the company's operating leverage. Rising medical costs are
leading to margin compression.
Nevertheless, we believe that the steady 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.
Molina currently carries a Zacks #3 Rank, implying a short-term
Sell rating. Considering the fundamentals, we maintain a long-term
Neutral recommendation on the shares.
COVENTRY HLTHCR (CVH): Free Stock Analysis
MOLINA HLTHCR (MOH): Free Stock Analysis Report
UNITEDHEALTH GP (UNH): Free Stock Analysis
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