Molina Healthcare Inc.
’s (MOH) first quarter 2010 earnings of 41 cents per share handsomely beat 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. However, the reported quarter earnings came 5 cents below the year-ago results.
Quarterly Results
Total operating revenue 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. The increase was partly offset by lower PMPM revenues. Molina’s investment income plummeted to $1.5 million from $3.5 million a year ago. The sharp decline was attributable to lower interest rates.
Total expenses in the quarter climbed approximately 13% to $946.3 million. Medical care costs came in at $822.8 million as against $737.9 million in the year-ago quarter, up approximately 11.5%. However, Molina witnessed a 1.7% year-over-year fall in PMPM medical costs in the reported quarter because of a lower incidence of influenza-related illnesses.
The lower PMPM medical costs at Molina was also attributable to improved hospital utilization, cuts in Medicaid fee schedules, the transfer of pharmacy costs back to the states of Ohio and Missouri and various contracting and medical management initiatives implemented by the Long Beach, California-based company. The medical care ratio (percentage of premiums paid to cover medical claims) in the quarter decreased to 85.3% from 86.1% in the year-ago quarter.
General and administrative expenses rose to $113.4 million from $92.5 million in the year-ago period. The expenses related to depreciation and amortization climbed approximately 11% year over year to $10.1 million.
Physician and outpatient costs in the first quarter of 2010 increased 3.4% year over year on a PMPM basis. Pharmacy costs (including the benefit of rebates and also the health plans of Ohio and Missouri) declined approximately 23% PMPM and capitated costs rose 2.1% PMPM.
However, in-patient facility costs decreased approximately 1.5% year over year in the first quarter of 2010. Utilization as well as unit costs was relatively stable in the reported quarter as against the year-ago quarter.
The company exited the quarter with $438.3 million in cash and cash equivalents as against $469.5 million at the end of 2009.
Molina revised its 2010 guidance to include the estimated operating results of Molina Medicaid Solutions. We remind investors that the company recently acquired information technology company Unisys Corp.‘s (UIS) health information management (HIM) business for $135 million in cash. The acquired division will operate as a subsidiary of Molina Healthcare under the name Molina Medicaid Solutions.
Molina expects to earn $1.51 per share in 2010, in line with the Zacks Consensus Estimate. Total operating revenue for 2010 is expected to come in at $4 billion.
Our Recommendation

Currently we are Neutral on Molina Healthcare. Our Neutral long-term outlook on the stock indicates that it will perform in line with the overall US equity market over the next six-to-twelve months. We advise investors to retain the stock over this time period.
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