Molina Healthcare Inc. (MOH) has raised its full-year 2010 outlook of net income of $1.70 per share with just under $4.1 billion in operating revenues. Previously in May, Molina expected its earnings at $1.51 for full year 2010, including the acquisition results of the Health Information Management (“HIM”) business of Unisys Corporation (UIS) which was later named – Molina Medicaid Solutions. Total operating revenue for 2010 was previously expected to come in at $4.03 billion.
 
Currently, Molina’s total operating revenue guidance for 2010 includes premium and service revenue of $4.0 billion and $92.5 million, respectively, with investment income of $6.3 million. Further, net income is expected at $47.1 million.
 
In addition, Molina has issued 2010 guidance for several items including medical care costs of $3.4 billion and service costs of $72.4 million. Molina also guides expense items for 2010 including general and administrative (G&A) expense of $325.3 million, premium tax expense of $141.7 million, depreciation of $29.9 million, amortization of $18.1 million, and interest expense of $16.0 million.
 
Molina further expects income tax expense at $28.9 million for 2010, with a tax rate of 38.0%.
 
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Molina reported its second quarter income from continuing operations of $10.6 million or 41 cents per share, compared to the income of $14.6 million or earnings of 56 cents in the year-ago quarter. 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 due to a mild flu season.
 
In addition, total operating revenues in the quarter climbed 7.7% year over year to $999.3 million with an increase in premium revenues of 5.5% to $976.7 million. The rise was attributable to increased enrollment which was partly offset by lower PMPM premium revenues following the decline in premium rates at several of Molina’s health plans.
 
However, Molina suffers from plummeting investment income resulting from lower interest rates, along with rising medical costs. Moreover, we believe that Molina will not be able to escape the adverse impact of the U.S. Health Care Reform Act of 2010 on its products and services.
 
Yet, Molina is on track with integration and expansion plans via acquisitions. The acquisition of the HIM business has added value to Molina’s Medicaid health plan business and advanced its strategic plan by expanding its services and product offerings beyond managed care. Also, the purchase of Abri health plan is expected to bring significant growth for Molina with the offering of health plan services in ten Medicaid markets all over the country.
 
Moreover, Molina is well positioned with improvements across its business lines, despite a challenging premium rate environment. Molina has impressive revenue growth, increasing scale and disciplined cost management along with the ability to build a strong portfolio in the industry. We believe that the strategy of growth through acquisitions, increasing revenues and improved guidance will be able to attract long-term investors.
 
MOLINA HLTHCR (MOH): Free Stock Analysis Report
 
UNISYS (UIS): Free Stock Analysis Report
 
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