Magellan Health Beats Earnings, Ups View

Zacks

Magellan Health Services Inc. (MGLN) reported third-quarter 2013 operating net income of $1.70 per share, surpassing the Zacks Consensus Estimate significantly by 68.3%. However, the results lagged 28% year over year.

Increase in expenses more than offset the increase in top line, leading to a year-over-year decline.

Operational Update

Magellan Health’s total net revenues grossed $873.6 million in the third quarter, which missed the Zacks Consensus Estimate of $875 million. However, the results improved 9.4% year over year. The increased net revenues came on the back of higher revenues derived from managed care and other as well as from dispensing.

Total cost and expenses of Magellan Health moved up 11.8% year over year during the reported quarter. The rise primarily stemmed from higher cost of care, cost of goods sold and direct service cost and other operating expenses.

Magellan Health generated segment operating profit of $59.2 million during the reported quarter, which slipped 14.7% year over year.

Segment Update

Commercial: Revenues were up 7.9% year over year to $190.6 million.

However, operating profit of the segment reduced 22.1% from the year-ago quarter.

Public Sector: Revenues stood at $45.3 million increasing 9.3% year over year.

Growth in top line led to a 35.7% year-over-year surge in operating profit to $34.8 million in the quarter.

Radiology Benefits Management: Revenues grossed $94.1 million during the third quarter, increasing 6.8% from the prior-year quarter.

Operating profit for the segment came in at $15.1 million during the reported quarter. It declined 7.9% from the comparable quarter in the previous year.

Pharmacy Solutions: Revenues amounted to $63 million, surging 15.8% year over year.

However, operating profit of this segment slid 17.5% from the comparable year-ago period.

Business Update

On Oct 1, 2013, Magellan Health closed the acquisition of Partners Rx in its effort to consolidate its foothold in pharmacy marketplace. Magellan Health’s strong cash balance supported it to pay $100 million for the transaction.

Under the new Medicaid Managed Care program, the state of Florida approved Magellan Complete Care of Florida for launching the Medicaid specialty health care plan during the third quarter of 2013. Magellan Complete Care is allowed to provide services in eight regions including 40 of 67 counties in Florida. The participation is subject to final rates, customary contract negotiations and execution of contract which is expected to take place in 2014.

Previously, Magellan Health marked its foray into the New York market by inking a deal with New York-based AlphaCare to make prudent investments and own 65% of the latter’s stake. This deal is expected to allow Magellan Health to provide better health care services at a reasonable price.

Financial Update

Magellan Health exited the third quarter of 2013 with cash and cash equivalents of $281.8 million that surged 48.7% from the 2012 end-level.  

Net cash provided by the operating activities of Magellan Health was $171.3 million in the first nine months of 2013. It soared 53.4% from the comparable year-ago period numbers.

Capital expenditure by Magellan Health amounted to $42 million in the first nine months of 2013 reducing 20.6% year over year.

Guidance

Based on its expectations from recent acquisitions and extension of its Maricopa county business, Magellan Health raised its full year 2013 guidance for net revenues to range between $3.5 billion and $3.7 billion. Net income is expected to hover within $118 to $136 million. The company also expects its operating net income to range between $4.28 and $4.93 per share considering the impact of the share buyback activity till Oct 21.  

Zacks Rank

Magellan Health presently carries a Zacks Rank #2 (Buy). Among others in the space, Aetna Inc. (AET) with a Zacks Rank #2 will release its financial results for the third quarter of 2013 on Oct 29. Other healthcare service providers, Humana Inc. (HUM) and Health Net Inc. (HNT) will release their quarterly financial results in the first week of November.

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