Molina plunges after withdrawing guidance due to losses in Texas

Molina Healthcare (MOH) is tumbling after the company said that the revenue it's obtaining in several areas of Texas which it began providing Medicaid plans in March isn't nearly adequate to cover the medical costs in those areas. The company estimates that the medical expenses in these areas are equal to approximately 120% of the premium revenue it's collecting there. As a result of this situation, Molina withdrew its FY12 guidance in a regulatory filing last night. In a note to investors this morning, Jefferies wrote that Molina's medical expenses in Texas overall are running at about 100% of premium revenues, up from 93.4% last year. If the 100% ratio continues throughout the year, it would "have a severe impact" on Moilina's 2012 EPS, since the state accounts for 20%-25% of the company's premiums, said Jefferies. However, Jefferies, which maintains a Hold rating on Molina, believes that the company will be able to take steps to mitigate the situation. The firm noted that several other companies - Cigna (CI), Centene (CNC) and Amerigroup (AGP) - also provide Medicaid plans in the same regions of Texas in which Molina is losing money. However, Jefferies says that these companies provide plans to significantly fewer people, and they may not be experiencing the same issues as Molina. In early trading, Molina tumbled $7.63, or 29.62%, to $18.14. Meanwhile, Centene dropped 13.18% to $32.42 and Amrigroup gave back 3.17% to $61.06 while Cigna was little changed.