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Molina Healthcare Unit to Buy Medicaid Assets from Preferred - Analyst Blog

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Molina Healthcare, Inc.MOH has entered into an agreement with Preferred Medical Plan, Inc. (Preferred) pertaining to the acquisition of certain assets of the latter. Per the terms of the deal, Molina Healthcare of Florida, Inc., a wholly owned subsidiary of Molina Healthcare, will acquire some of Preferred's Floridian Medicaid business assets.

The deal is pending regulatory approvals and is slated to culminate in the third quarter of 2015. Per the terms of the transaction, Molina Healthcare of Florida will assume the Medicaid contracts of Preferred in Miami-Dade and Monroe Counties. Additionally, some of the assets associated with the functioning of the Medicaid business will also be purchased by the affiliate.

The acquisition will be funded by the parent company's available cash on hand. Molina Healthcare has a strong cash position as seen from its financial statements in the last reported quarter. As of Mar 31, 2015, cash and cash equivalents at Molina Healthcare were $1.9 billion, up from $1.5 billion at year-end 2014. Cash from operations amounted to $553.6 million as against $210.9 million in the year-ago quarter.

Molina Healthcare intends to strengthen its presence in Florida. Simultaneously, the insurer plans to enhance its Medicaid operations so as to serve the program and the state efficiently. Thus, the company chose Preferred, which already has a strong presence in the region and serves approximately 25,000 Medicaid members.

In a similar development, Molina Healthcare of Michigan, Inc. signed a deal to acquire some assets of the Medicaid and MIChild businesses of HealthPlus of Michigan and its subsidiary - HealthPlus Partners, Inc. - in May this year.

Molina Healthcare generates its service revenues from the Medicaid Solutions operations. We believe that these deals will strengthen Molina Healthcare's Medicaid operations, thereby boosting its clientele. This, in turn, should help the company attain the desired service revenue guidance of $180 million in 2015, up 47% from that achieved in 2014.

Not only Molina Healthcare, the Medicaid business has been a huge boon for other insurers across the industry, thanks to Medicaid Expansion under the health care reform act. The Affordable Care Act expanded Medicaid eligibility beginning 2014 to nearly everyone under the age of 65 with income up to 138% of the federal poverty level. Insurers have welcomed new Medicaid members as growth has slowed in their conventional employer benefits business. UnitedHealth Group Inc. UNH and Anthem, Inc. ANTM are among the largest Medicaid providers. Other companies that have traditionally focused on employer-based coverage are also seeking to enlarge their Medicaid plans. Among others, Centene CNC and Aetna have raised their revenue forecasts for 2015, reflecting higher enrollment in this line of business.

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

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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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