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Magellan Healths Growth Measures Aid Investors' Confidence

Zacks Equity Research

Magellan Health, Inc.’s MGLN strategic initiatives to rake in growth seems to be slowly taking off. Though the company has sustained declining earnings and revenues for the first nine months of 2019, investors’ have been cognizant of the green shoots appearing in its Pharmacy Management business and greater clarity for its overall business performance.

Increased visibility for business growth in the second half of 2019 have supported the stock price gain of 7.8% compared with the industry’s decline of 5.4%. In 2018, the stock slid 41% due to its disappointing performance.


During June 2018, sources reported that Magellan Health was mulling its possible sale to private-equity firm Centerbridge Partners, after it came under pressure, due to its prolonged underperformance, from activist hedge fund Starboard Value, which owned nearly 10% stake in the company.

The second-quarter earnings provide a clearer visibility into second-half earnings performance. Though the company anticipates year-over-year decline in top line for 2019, it expects new business wins and lower costs to support overall results.

Magellan Health expects earnings growth in the Pharmacy Management segment, which contributed nearly 40% of total revenues in 2018. This should be driven on the back of improvement in cost of goods sold, addition of a new business in 2019, and a normal seasonality in the fourth quarter.

Also, Healthcare segment, which made up nearly 60% of the company’s revenues in 2018, should see higher earnings from the normalization of utilization and finalization of New York reimbursement rates.

The sale of Magellan Health has become deadlocked. Thus, it is focusing on business growth.

Magellan Health carries a Zacks Rank #3 (Hold). Some better-ranked players in the same space are Molina Healthcare, MOH, UnitedHealthcare Group, Inc. UNH and Cigna Corp. CI. Each of these stocks carries a zacks rank #2 (Buy).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Cigna has surpassed earnings estimates in three of the four reported quarters by 7.02%. UnitedHealth and Molina Health have surpassed the same in each of the four reported quarters by 3.37% and 66.93%, respectively.

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Cigna Corporation (CI) : Free Stock Analysis Report
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