Molina Healthcare Hits 52-Week High: Is Further Upside Left?

On Aug 13, Molina Healthcare, Inc.MOH hit a 52-week high of $133.29. The upside in the stock should have been driven by its strong second-quarter earnings and raised outlook and faster gains on its turnaround initiatives.

The company's financial results reflect the early stages of its margin recovery and working of its sustainability plan.

In a year's time, the stock has gained 132% outperforming the industry 's growth of 34%.

Investors have gained confidence in the stock as the company continues to focus on optimizing its capital structure and business portfolio. It has further reduced debt, repaid the outstanding balance on a revolving line of credit, simplified capital structure and contracted to sell a non-core operating assets to produce additional excess cash at the parent company.

What Drove the Upside?

Investors were pleased with Molina Healthcare's second-quarter 2018 adjusted earnings of $2.25 per share, which surpassed the Zacks Consensus Estimate by a whopping 106.4%. In the prior-year quarter, the company had incurred a loss of 1 cent per share.

The company is protecting its bottom line by focusing on its costs. Its administrative cost ratio decreased to 7.2% year to date, led by a combination of continued administrative cost containment and better -than-expected revenues.

The Medicaid contract wins in Washington and Florida should also aid the company's revenues from the Medicaid line of business.

In June, the company entered into a definitive agreement to sell Molina Medicaid Solutions to DXC Technology for $220 million, which should generate between $150 million and $180 million of additional parent company cash.

The company also gave a revised guidance for the year of $7.15 to $7.35 earnings per share on a reported basis, reflecting an increase of $3 at the midpoint of its previous guidance range. The company expects net income margin of approximately 2.2%, exceeding its previous guidance range of 1.5% to 1.6%. Its revenue guidance of $18.8 billion also exceeds the earlier forecast of $18.7 billion.

Will Shares Gain Further?

The stock should get a further upside as it is showing marked changes from transformation initiatives undertaken recently. New leadership, cost cutting efforts, profit improvement initiatives and a focus on improving efficiency of core operating processes, should aid the company's results.

Zacks Rank and Other Stocks

Molina Healthcare carries a Zacks Rank #1 (Strong Buy). Another stock in the same space Aetna Inc. AET also hit a 52-week high of $195.3 on the same day.

You can see the complete list of today's Zacks #1 Rank stocks here .

Other stocks worth considering are UnitedHealth Group Inc. UNH and WellCare Health Plans, Inc. WCG . Each of these stocks carry a Zacks Rank #2 (Buy).

UnitedHealth and WellCare each beat earnings estimates in each of the four reported quarters with an average positive surprise of 3.71% and 54%, respectively.

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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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