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Why Molina Appears an Attractive Stock for Your Portfolio

Zacks Equity Research

Molina Healthcare MOH is well-poised for development on the back of its growing top line and restructuring initiatives.

The company also flaunts a favorable earnings surprise history, having trumped the Zacks Consensus Estimate in all the trailing four quarters, the average being 88.17%. This trend of consecutive estimate beats backs the company’s operating efficiency.

The company is well-placed for growth, evident from its favorable VGM Score of A. Here V stands for Value, G for Growth and M for Momentum with the score being a weighted combination of all three factors.

Its Return on Equity — a profitability measure — came in at 49.2%, which is significantly higher than the industry’s average of 23%.

Molina Healthcare has seen consistent growth in its revenue base over the past several years. This upside is evident from its five-year CAGR (2012-17) of 27.4%. Although it dipped to some extent in 2018, the same again rose 11.3% in the first quarter of 2019. The rise in the top line is primarily attributable to the company’s premium revenues, which have increased steadily over the past many years. Given the realignment initiatives and developmental strategies, we expect revenues to continue surging going forward.

Moreover, the company has been gaining from its solid restructuring and profitability improvement plan, started in 2017. The plan included streamlining of the organizational structure to improve efficiency as well as the speed and quality of management’s decision-making process. This initiative has resulted in a total expense decline of 13.2%, each in 2018 and the first quarter of 2019. The company even sold some of its units, such as Pathways Health and Community Support, LLC and Molina Medicaid Solutions as part of this initiative. We expect the company to continue gaining momentum on the back of this endeavor.

The Zacks Consensus Estimate for current-year earnings is pegged at $10.94, indicating an increase of 3.1% from the year-ago reported figure.

For 2020, the Zacks Consensus Estimate for earnings stands at $11.68 on $17.76 billion revenues, implying a respective 6.8% and 8.4% improvement from the prior-year reported numbers.

Shares of this Zacks Rank #1 (Strong Buy) company have soared 60.3% in the past year against its industry's decline of 1.6%.



Other Key Picks

Investors interested in the medical sector can also take a look at some other top-ranked stocks like WellCare Health Plans, Inc. WCG, Anthem, Inc. ANTM and Centene Corporation CNC, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here .

WellCare Health offers managed care services to government-sponsored health care programs. The company pulled off average positive surprise of 13.52% in the preceding four quarters.

Anthem operates as a health benefits company in the United States. In the last four quarters, the company delivered average beat of 4.76%.

Centene operates as a multi-national healthcare enterprise, providing programs and services to under-insured and uninsured individuals in the United States. In the trailing four quarters, the company came up with average beat of 3.12%.

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