Why Buying Molina Healthcare (MOH) is a Prudent Move Now?
Molina Healthcare, Inc. MOH is well poised to grow on the back of rising membership and strategic initiatives. Its effectiveness in utilizing shareholders' money impresses investors. The company’s ability to engage in inorganic growth initiatives and capital deployment reflects an improved financial position.
Headquartered in Long Beach, CA, Molina Healthcare is a multi-state managed care provider participating exclusively in government-sponsored healthcare programs such as the Medicaid program and the State Children's Health Insurance Program, catering to low-income persons. It has a market cap of $18.5 billion.
Outperformer
Over the past year, MOH stock surged 56.1%, outperforming the industry’s 39.4% rise. The S&P 500 Index has rallied 27.1% in the same time frame.
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Favorable Rank & VGM Score
Courtesy of solid prospects, this Zacks Rank #2 (Buy) stock is worth adding to your portfolio at the moment. Also, the company currently has a VGM Score of B. Our research shows that stocks with a VGM Score of A or B combined with a Zacks Rank #1 (Strong Buy) or 2 or 3 (Hold) offer the best investment opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.
Growing Revenue Trend
Last year, Molina Healthcare’s revenues rose 15.4% year over year to $19.4 billion. Total revenues for 2021 are anticipated to be no less than $27.5 billion. Further, the Zacks Consensus Estimate for 2022 is pegged at $30.8 billion.
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Cost Cutting Boosts Profits
MOH has been gaining from the restructuring and profitability improvement plan started back in 2017. The plan included streamlining of the organizational structure to improve efficiency and the speed and quality of decision making. This initiative led to a total expense decline of 13.2% and 11% in 2018 and 2019, respectively. Prudent cost-management efforts and sound scalability of the business led to a decline in the adjusted G&A ratio in 2020. Although the same increased for the first nine months of 2021, we expect the company’s measures to help it cut down on costs going forward and boost profits.
Thanks to the initiatives, management reaffirmed its full-year 2021 adjusted earnings guidance of not less than $13.25 per share. This reflects a significant jump from $10.67 per share in 2020. Further, the Zacks Consensus Estimate for the bottom line for 2022 is pegged at $17.02 per share.
Strong ROE
Its return on equity — a major profitability measure — is 25.9%, better than the industry average of 20.2%. The metric reflects the company's effectiveness in utilizing shareholders' money.
Inorganic Growth
Molina Healthcare focuses on strategic acquisitions to boost its business. The company completed the buyout of the Magellan Complete Care line of business of Magellan Health, Inc. MGLN. The transaction brought in more than 3.6 million members under government-sponsored healthcare programs across 18 states. The company acquired Affinity Health Plan this October, which brought onboard 310,000 members. In April 2021, Molina Healthcare inked a deal to purchase Texas Medicaid and Medicare-Medicaid Plan contracts as well as specific operating assets of Cigna Corporation CI for $60 million in cash. The company also closed other buyouts such as YourCare and Passport, which led to membership increase. Molina Healthcare also bought AgeWell’s managed long-term care business in New York. It also expects the same to deliver an accretion of 15-20 cents within the first year of ownership.
Various buyouts are leading to membership growth for the company. As of Sep 30, 2021, membership witnessed growth of 20% year over year, attributable to well-performing Medicare, Medicaid and Marketplace businesses. We expect the same to rise on the back of contract wins and strategic initiatives.
Other Companies With Rising Membership
Similar to MOH, other players in the medical space such as Humana Inc. HUM and Cigna also boast strong growth in medical membership and have undertaken a plethora of measures to cater to the healthcare needs of people.
Humana continues to witness growing membership and is entering into new collaborations or contract extensions with renowned healthcare systems. This has been bolstering HUM’s partner networks and strengthening its U.S. footprint. As of Sep 30, 2021, total medical members increased 3.5% from the prior-year comparable period. For 2021, Humana anticipates individual MA membership to witness an 11% year-over-year improvement.
Cigna has performed well on the back of continuous product expansions, growing membership and new collaborations or contract extensions with renowned healthcare systems. As of Sep 30, 2021, medical customers of CI received a boost from well-performing Select, Individual, International Markets and MA businesses. Cigna remains on track to achieve MA customer growth in the targeted range of 10-15% this year.
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