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5 Reasons Why Molina Healthcare Stock is a Solid Pick Now

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California-based medical insurer Molina Healthcare, Inc.MOH , which provides health services to Medcaid eligible population, has been witnessing consistent top-line growth in recent times. We note that the increase in the company's revenues has been supported by the surge in enrollment, courtesy of the Medicaid expansion driven by ObamaCare.

The company, which has so far been benefiting from the Health Care Reform, could lead to a steep decline in the number of people enrolled in state Medicaid programsif President Donald Trump's repeals and reforms the act. This could hurt the company's Medicaid-centric business. However, any changes introduced by the new President will take some time to become effective.

Meanwhile, Molina Healthcare seems to be an attractive pick. Here's why.

Favorable share price movement:

Shares of Molina Healthcare have been performing well. Over the last six months, the stock has gained 13% compared with the 9.5% increase registered by the Zacks categorized Health Maintenance Organization (HMO) industry. This reflects the company's strong business.

LAST SIX MONTHS' PERFORMANCE CHART:

Fundamental Growth:

Apart from consistent premium growth, Molina Healthcare has been growing inorganically via in-market or tuck-in acquisitions. These buyouts have helped significantly boost it presence in existing markets. After 2015 - the most active MA (Mergers & Acquisition) year - the company completed its buyout of Universal American's UAM Total Care Medicaid plan. Also, it agreed to buy certain Medicare Advantage assets from both Aetna Inc. AET and Humana Inc. HUM in 2016. These deals reflect the company's focus on arranging healthcare services for patients with complex requirements, which in turn, is expected to boost revenues. Molina Healthcare's stock price appreciation reflects this revenue growth.

Undervalued

The company's PEG (Price to Earnings Growth) ratio of 0.99, which is lower than the industry average of 1.29, shows that the stock is undervalued. Molina Healthcare is pretty strong on its other key value statistics as well. It has a P/S (Price to Sales) ratio of 0.18, which is also lower than the industry average of 0.46. The company has a P/CF (Price to Cashflow) ratio of 3.81, whereas the industry average is 5.00. This strengthens Molina Healthcare's potential as a value stock. Also, the stock's projected EPS growth of 34% is substantially higher than the industry average of 13.14%.

VGM Score

Molina Healthcare has a VGM Score of 'A'. Our VGM Score identifies stocks that have the most attractive value, growth, and momentum characteristics. In fact, our research shows that stocks with VGM Scores of 'A' or 'B' when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy) make solid investment choices.

Potential for a Positive Earnings Surprise

The company delivered positive earnings surprises in three of the last four quarters with an average beat of 2.55%. For the fourth quarter, the Zacks Consensus Estimate is pegged at 75 cents, reflecting year-over-year growth of 15%. Molina Healthcare is expected to release fourth-quarter earnings on Feb 13, 2017. The company's Zacks Rank #2 combined with its Earnings ESP of +5.33% make us reasonably confident of an earnings beat. You can see the complete list of today's Zacks #1 (Strong Buy) Rank stocks here.

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Universal American Corp. (UAM): Free Stock Analysis Report

Aetna Inc. (AET): Free Stock Analysis Report

Humana Inc. (HUM): Free Stock Analysis Report

Molina Healthcare Inc. (MOH): 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 Nasdaq, Inc.


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

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