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Molina Healthcare (MOH) Surges 44.1% YTD: More Room to Run?

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Molina Healthcare, Inc MOH has been buoying investors’ optimism on the back of its financial solvency and rising membership.

Shares of this currently Zacks Rank #3 (Hold) company have surged 44.1% year to date, outperforming its industry’s growth of 1.6%.

The price performance looks stellar when compared to other companies’ stock movements in the same space, such as Centene Corporation CNC, Humana Inc. HUM and UnitedHealth Group Incorporated UNH, which have gained 3.2%, 15% and 9.9%, respectively. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Recently, the company’s second-quarter 2020 adjusted earnings of $4.79 per share beat the Zacks Consensus Estimate by 1.9%. Moreover, the bottom line soared 54% year over year on the back of higher revenues. Total revenues of $4.6 billion also rose 10.1% year over year on increased membership.

Following better-than-expected earnings, the company raised its revenue guidance to $18.8 billion from its earlier projection of $18.3 billion owing to higher Medicaid enrollment through the first half of the year as well as revenues from YourCare membership. The company anticipates earnings in the range of $11.20-$11.70 per share.

It also expects premium revenue growth of approximately 20% for 2021. A solid outlook should instill investors’ confidence in the stock.

On the back of its strategic initiatives and growing membership, the company saw strength in its revenue base. The same increased 10.3% year over year in the first six months of 2020. We are hopeful that the company’s top line will continue to be aided by these tailwinds.

Molina Healthcare’s solid balance sheet position impresses. Its times interest earned stands at 13.7X, higher than the industry average of 12.4X. Moreover, as of Jun 30, 2020, the company had cash and cash equivalents worth $3.3 billion, higher than its long-term debt of $1.8 billion. It also enhanced its revolver to $1 billion from its previous level of $500 million.

Is the Bull Run Likely to Continue?

We expect the company to continue performing well as it steadily pursues its strategic efforts.

The company’s membership will also rise going forward. Its YourCare membership is expected to grow by 47,000 in the third quarter. We expect the same to surge on contract wins. Its Kentucky RFP win will get contracts starting Jan 1, 2021.

We also expect the company’s restructuring initiative to curb costs going forward. The measures include streamlining of its organizational structure to improve efficiency as well as the speed and quality of decision-making.

The acquisition of Magellan Health will enable it to serve more than 3.6 million members under government-sponsored healthcare programs across 18 states. This buyout is projected to provide $2.8 billion of revenues in 2021.

The company's 2020 earnings estimate stands at $11.84, indicating an upside of 2.3% year over year.

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