Following the release of first quarter results on May 5, 2010, many of the analysts covering Molina Healthcare (MOH) have made upward revisions to their 2010 and 2011 annual estimates. The company performed impressively in the quarter, beating the Zacks Consensus Earnings Estimate by 23 cents. Furthermore, the acquisition of the Health Information Management business of Unisys Corporation (UIS) should add value to Molina’s Medicaid health plan business.
Earnings Report Review
Molina earned 41 cents per share in the first quarter of fiscal 2010, which is well above the Zacks Consensus Estimate of 18 cents. The better-than-expected results in the quarter were driven by higher operating revenues coupled with lower medical care costs on a per-member per-month (PMPM) basis because of a mild flu season.
Total operating revenues in the reported quarter climbed 12.3% year over year to $966.7 million. Premium revenues in the first quarter of 2010 climbed 12.6% to $965.2 million. The rise was attributable to an approximately 14% year-over-year rise in enrollment in the reported quarter.
(Read our full coverage on this earnings report here: Molina Tops, Revises Guidance)
Agreement of Analysts
Four of the 9 analysts covering the stock for fiscal 2010 have raised their estimates while only one has moved downwards in the last 30 days. Fiscal 2011 estimates have also been revised upwards by 5 analysts with no downward revisions in the last 30 days.
The upward revisions for fiscal 2010 and 2011 indicate that the long-term outlook for the company is stabilizing with the lower incidence of influenza-related illnesses. The rise in H1N1 influenza in 2009 caused medical care costs to soar thus impacting earnings in 2009.
Furthermore, Molina has historically increased its membership through the development of new health plan operations, the acquisition of existing health plans and internal growth. Molina currently serves approximately 1.50 million members.
Recently, Molina acquired information technology company Unisys Corp.’s health information management (HIM) business for $135 million in cash. The acquisition is a positive for Molina as the HIM business adds value to its Medicaid health plan business. The acquisition expands Molina’s services and product offerings beyond managed care. The acquired division will operate as a subsidiary of Molina Healthcare under the name Molina Medicaid Solutions.
Magnitude of Estimate Revisions
As per the above table, the fiscal 2011 estimates have increased substantially (by 11 cents) over the last 30 days, which further indicate that the long-term outlook is stabilizing.
Our Recommendation
Following the impressive first quarter results, we have upgraded Molina Healthcare to Outperform from Neutral. Results were driven by higher operating revenues coupled with lower medical care costs on a per-member per-month (PMPM) basis because of the mild flu season.
Furthermore, there was an approximately 14% year-over-year rise in enrollment in the quarter. Additionally, the acquisition of the Health Information Management business of Unisys Corporation should add value to Molina’s Medicaid health plan business. We believe that the current price represents an attractive entry point for long-term investors.
About Earnings Estimate Scorecard
Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education/
Read the full analyst report on “MOH”
Read the full analyst report on “UIS”
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