October 24, 2012
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Medicaid-based health-care solutions provider Molina Healthcare (NYSE: MOH ) advanced as much as 16% following the release of its third-quarter results.
So what: For the quarter, Molina reported a profit of $0.07, far and away better than Wall Street had expected following a cautious outlook from the company just weeks prior that high medical costs in Texas would drag down results. However, a price hike in Texas compounded with cost-cutting measures staged a quick turnaround that helped bring results back into the positive toward the end of the quarter. Unfortunately for shareholders, Molina's California operations are now showing similar symptoms to Texas.
Now what: Earlier this week, I said the most important factor for Molina would be addressing its medical cost structure in Texas, and it appears to have done that quite well. Last week, its primary rival Centene (NYSE: CNC ) terminated its contract with the state of Kentucky due to unfavorable medical costs, and I suggested Molina needed to either do the same with Texas, or boost its pricing. Although Molina's margins are weaker based on their target audience, having millions of newly Medicaid-eligible persons joining its pools thanks to the passing of the Affordable Care Act should help boost its results over the long term.
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