On Jan 6, 2013 we upgraded our recommendation on
Molina Healthcare Inc.
) to Neutral given its sustained effort to enlarge its membership
base that in turn would augment its premium revenue. This managed
care organization currently carries a Zacks Rank #3 (Hold).
Why the Upgrade?
In Nov 2013, one of Molina's subsidiaries - Molina Healthcare of
Michigan Inc. was selected by Michigan Department of Community
Health (MDCH) to participate in the Michigan Demonstration
Program to Integrate Care for Persons Eligible for Medicare and
Medicaid. Enrollment for this program is expected to commence on
Oct 1, 2014, bolstering the overall membership base going
Other health plans of Molina like those in California, Ohio
and South Carolina were also selected to take part in the
dual-eligible demonstration projects in 2014. Following the
release of the news, analysts have raised their estimates,
leading to a 0.5% increase in the full-year 2014 Zacks Consensus
Estimate to $2.01 per share.
A couple of programs that are scheduled to be implemented in 2014
are also viewed favorably in terms of their contribution to
membership growth. One such program that deserves special mention
in this regard includes the New Mexico's State Coverage Insurance
(SCI) program with Lovelace. Membership should also increase as
Molina awaits receipt of three new contracts under the Florida
Statewide Medicaid Care Managed Medical Assistance Invitation to
Negotiate, expected to begin in the second quarter of 2014.
Consistent improvement in the membership base should enhance the
steady improvement in premiums and service revenues. The
inorganic growth profile of Molina also remains impressive as the
company incessantly expands its geographic reach via
acquisitions. In fact, one of the acquired entities - Community
Health Solutions of America Inc. is slated to transfer its
Medical Homes Network membership to Molina in 2014, which should
again aid membership apart from expanding company network.
However, amid the positives, rising medical care costs, declining
investment income and regulations that are expected to be
implemented this year such as the ban on annual and lifetime
coverage caps, annual fees on health insurance companies and
excise tax on high premium insurance policies raise concern over
the stock. Thus, we do not expect a near-term outperformance for
Molina is scheduled to release its fourth-quarter 2013 results in
the first week of Feb 2013. The Zacks Consensus Estimate for the
fourth quarter of 2013 is currently pegged at 1 cent,
representing a year-over-year decline of 98.2%.
Other Stocks to Consider
Some better-ranked stocks in the healthcare space include
Addus HomeCare Corp.
VCA Antech Inc.
Acadia Healthcare Company, Inc.
). While Addus carries a Zacks Rank #1 (Strong Buy), VCA Antech
and Acadia 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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