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Molina (MOH) Down 8.9% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Molina (MOH). Shares have lost about 8.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Molina due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Molina Healthcare Q3 Earnings Top, 2022 EPS View Up

Molina Healthcare reported third-quarter 2022 adjusted earnings of $4.36 per share, which outpaced the Zacks Consensus Estimate by 2.6%. The bottom line soared 54% year over year.

MOH’s total revenues amounted to $7.9 billion, which rose 12.6% year over year in the quarter under review and beat the consensus mark by a whisker. Our estimate for the metric stands at $7.8 billion.

The quarterly results gained from higher premium revenues and new business wins. However, the adjusted earnings per share (EPS) figure suffered an adverse impact of 59 cents due to the net COVID effect.

Quarterly Operational Update

Premium revenues improved 12% year over year to $7.6 billion in the third quarter, courtesy of buyouts and growing organic membership within Medicaid and Medicare businesses. The metric came in line with the Zacks Consensus Estimate and beat our estimate of $7.5 billion.

Total operating expenses of Molina Healthcare escalated 11.3% year over year to $7.6 billion, primarily due to higher medical care costs, general and administrative expenses, and premium tax expenses. Our estimate for the metric stands at $7.4 billion.

Interest expenses of $28 million fell 6.7% year over year.

Net income of MOH surged 60.8% year over year to $230 million in the quarter under review.

The consolidated medical care ratio (medical costs as a percentage of premium revenues) or MCR improved 50 basis points (bps) year over year to 88.4%. The metric witnessed an improvement despite suffering a headwind of around 60 bps due to the net COVID effect.

MOH’s total membership stood at around 5.2 million members, up 7% year over year, thanks to the well-performing Medicaid and Medicare businesses. The metric surpassed the consensus mark of 4.9 million and our estimate of 4.8 million.

Financial Update (as of Sep 30, 2022)

Molina Healthcare exited the third quarter with cash and cash equivalents of $4.2 billion, down 4.4% from the figure at 2021 end. Total assets of $12.8 billion grew 4.8% from the 2021-end level.

Long-term debt amounted to $2.2 billion, inching up marginally from the figure as of Dec 31, 2021.

Total stockholders’ equity of $3 billion climbed 15.6% from the 2021-end level.

During the first nine months ended Sep 30, 2022, net cash provided by operating activities plunged 35.3% from the prior-year comparable period’s level to $985 million due to timing differences in government receivables and payables. However, the downside was partly mitigated by better net earnings.

2022 Guidance

Management altered guidance for this year with respect to certain metrics.

Premium revenues are projected to be roughly $30.5 billion, higher than the prior outlook of around $30 billion. The revised guidance implies an improvement of 13.4% from the 2021 figure. The Public Health Emergency, extended from October of this year to January 2023, solid third-quarter 2022 results and the AgeWell buyout completed this month contributed to the positive revision in the premium revenue guidance.

Adjusted EPS is estimated to be a minimum of $17.75, up from the previous projection of at least $17.60. The hiked outlook suggests growth of 31.1% from the 2021 reported figure.

Net income of Molina Healthcare is expected to be $1 billion, marginally higher than the prior estimate. The updated outlook indicates a surge of 57.5% from the 2021 reported figure.

Prior Projections

This year, total revenues were anticipated to be $29.5 billion, implying an improvement of around 6% from the 2021 figure.

Total membership for 2022 was estimated at 4.5 million, indicating a 13.5% fall from the 2021-end figure.

Consolidated MCR was forecast at 88%, reflecting a 30 bps improvement from the 2021 figure.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

VGM Scores

Currently, Molina has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Molina has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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