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Here's Why Investing in Molina Healthcare (MOH) Makes Sense

Zacks Equity Research

Estimates for Molina Healthcare, Inc. ’s MOH have been revised upward over the past seven days, reflecting analysts' optimism on the stock. The stock has seen the Zacks Consensus Estimate for 2019 earnings move 0.4% north over the same time frame.

Shares of this Zacks Rank #1 (Strong Buy) company have soared 88.7%, outperforming the industry’s growth of 16.8%.

It is well-poised for growth, which is also apparent from its Value Score of A. Our research shows that stocks with a Value Style Score of A or B when combined with a top Zacks Rank #1 (Strong Buy) or 2 (Buy), offer the best opportunities in the value investment space.

The company boasts an attractive earnings surprise history, having outpaced the Zacks Consensus Estimate in all the trailing four reported quarters, the average being 109.4%. This trend of consecutive estimate beats speaks volumes for the company’s operational excellence.

The company recently delivered fourth-quarter adjusted earnings of $3.88 per share, surpassing the Zacks Consensus Estimate of $1.52 by a whopping 155.3%. This is primarily attributable to higher premiums and reducing costs. The bottom line also reversed the year-ago period’s loss of 34 cents.

In the last reported quarter, Molina Healthcare delivered a net income of $201 million, rebounding from its year-earlier quarter's loss of $262 million. For 2018, the company’s net income came in at $707 million against 2017's net loss of $512 million.

Moreover, the company has been constantly making efforts to lower its overall operating expenses. As a result, it has curtailed its operating expenses by 13.2% year over year in 2018. This improvement was courtesy of lower medical care costs and cost of service revenues. Interest expenses declined 2.5% year over year.

Molina Healthcare has seen consistent growth in revenue base over the past several years. Evidently, total revenues witnessed a five-year CAGR (2012-17) of 27.4%. Although total revenues decreased 5% in 2018 due to weak premium and premium tax revenues, thanks to the restructuring initiatives taken by the company, we still expect the metric to bounce back on the growth path.

During the second quarter of 2017, Molina Healthcare started a comprehensive restructuring and profitability improvement plan, under which, the company would streamline its organizational structure to improve efficiency besides the speed and quality of decision-making. As part of this endeavor, the company sold its units, Pathways Health and Community Support, LLC and Molina Medicaid Solutions, which are expected to help it focus on core growth areas.

Its return on equity — a profitability measure — is 45.7%, better than the industry average of 21.8%. Further, this reflects the company’s efficiency in utilizing its shareholders’ funds.

For 2020, the Zacks Consensus Estimate for earnings stands at $10.18, up 8.89% year over year on $18.3 billion revenues.

Other Stocks to Consider

Investors interested in the Medical-HMO industry can also check out some other top-ranked stocks like Centene Corporation CNC, UnitedHealth Group Incorporated UNH and WellCare Health Plans, Inc. WCG, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here .

Centene works as a diversified and multi-national healthcare enterprise, offering programs and services in the United States. The company managed to pull off average trailing four-quarter earnings surprise of 5.05%

UnitedHealth operates as a diversified health care company in the United States. It came up with average four-quarter beat of 3.39%.

WellCare offers managed care services for government-sponsored health care programs. It delivered average trailing four-quarter positive surprise of 15.4%.

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