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Here's Why Hold Strategy is Apt for Magellan (MGLN) Stock

Zacks Equity Research
·4 min read

Magellan Health, Inc. MGLN remains well poised to benefit from improved telehealth services to cater to the behavioral health needs of people. Several cost-cutting efforts are acting as a tailwind for the company.

The healthcare provider boasts an impressive earnings surprise history. It surpassed earnings estimates in each of the trailing four quarters, with an average surprise of 83.2%.

Factors Driving Magellan

This Zacks Rank #3 (Hold) healthcare provider has left no stone unturned in offering telehealth services to clients, as these were the only feasible option to get medical help amid stringent lockdowns and social-distancing measures undertaken to curb the coronavirus spread.

Magellan has always been inclined to serve the behavioral health needs of its members. Behavioral health issues need to be addressed at the earliest as these have been rising alarmingly, triggered by the COVID-19 pandemic. The company intends to provide the much-needed behavioral health services through virtual means. Recently, it has acquired a 70% interest in Bayless Integrated Healthcare, which is a niche player in the integrated primary care and behavioral health area. The move will also provide the company with a scalable virtual platform to strengthen presence across newer markets.

As the pandemic still continues to prevail, the behavioral and specialty health unit, Magellan Healthcare launched programs and resources last month to help people address health issues during the holiday season.

As a case in point, Magellan made a strategic investment in Kaden Health this October. Kaden, which is equipped with a proprietary telemedicine platform, has paved the way for integration of digital capabilities in Magellan’s collaborative care model. Notably, the model has been developed by more than three decades of research. Through this model, it intends to not only to bring about improved health outcomes but also lower healthcare costs incurred for its members. This September, the company joined forces with Livongo for for providing enhanced behavioral health offerings across a modern digital platform – Livongo for Behavioral Health.

Moreover, Magellan has been utilizing advanced data and analytics capabilities to roll out enhanced behavioral health, specialty health and pharmacy management solutions, for which the company has been making significant investments.

It has been undergoing transformation efforts in the form of increased automation in processes and streamlining of business operations. These initiatives have been bringing down the company’s operating costs and providing an impetus to margins, which expanded 180 basis points year over year as of Sep 30, 2020.

As a case in point, the company’s divestiture of Magellan Complete Care (MCC) business to Molina Healthcare, Inc. MOH highlights its efforts to streamline business operations. Magellan also seems to be well on track to achieve net savings of $30 million and $75 million by 2021 and 2022, respectively.

Furthermore, the company believes in effective deployment of capital for undertaking not only several growth initiatives in the form of mergers and acquisitions but also pursuing share buybacks.

Shares of this healthcare provider have gained 14.7% in the past six months compared with the industry’s 10.9% rally.

However, the company’s revenues have remained under pressure for quite some time, which remains a concern. Nevertheless, we believe that its strong fundamentals are likely to help the stock to continue performing well in the days ahead.

Stocks to Consider

Some better-ranked stocks in the medical space include Quidel Corporation QDEL and Acadia Healthcare Company, Inc. ACHC. While Quidel sports a Zacks Rank #1 (Strong Buy), Acadia Healthcare carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Quidel and Acadia Healthcare surpassed earnings estimates in each of the trailing four quarters, delivering a surprise of 30.7% and 20.8%, on average, respectively.

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Molina Healthcare, Inc (MOH) : Free Stock Analysis Report
 
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Zacks Investment Research