Why Magellan Health Inc. Shares Decreased in Price Today

Is this meaningful? Or just another movement?

Jul 25, 2014 at 3:03PM

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 Magellan Health (NASDAQ:MGLN) have stabilized at a loss of roughly 7% after plunging to a near 15% loss in early trading today. The sell-off was sparked by a disappointing earnings report that showed higher-than-expected compliance costs.

So what: Magellan, which recently acquired CDMI and Partners Rx, pointed to these two purchases as reasons for its revenue growth, which was up 5% year over year to $888 million for the second quarter. However, adjusted earnings of just $0.39 per share (excluding acquisition-related stock-based compensation and other one-time expenses) were far below the year-ago quarter's $1.15 in EPS. Analysts were expecting very slight top-line growth to $863 million, so Magellan came out ahead of that result, but it failed to reach Wall Street's EPS consensus of $0.57. The company blamed its weak earnings on "terminated contracts and unfavorable care trends" in its public-sector operations, particularly from the cost of care for behavioral-health issues. But its full-year guidance -- with an adjusted EPS range of $2.67 to $3.32 -- remains unchanged, as the company has plans to address its cost-of-care issues.

Now what: Today's drop merely brings Magellan's shares back to even for the previous year, but its dwindling earnings have pushed its P/E close to multiyear highs. On the other hand, the company's free cash flow is actually up quite a bit in its first two quarters this year as compared to the first six months of 2013, and as a result the company's price-to-free-cash-flow ratio is currently barely in the double digits, which is close to the lowest it's been since 2011. Magellan investors might be worried about future profitability, but the company is cheap enough on both a profitability and a free cash flow basis to potentially merit a closer look after today's drop.

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A Financial Plan on an Index Card

Keeping it simple.

Aug 7, 2015 at 11:26AM

Two years ago, University of Chicago professor Harold Pollack wrote his entire financial plan on an index card.

It blew up. People loved the idea. Financial advice is often intentionally complicated. Obscurity lets advisors charge higher fees. But the most important parts are painfully simple. Here's how Pollack put it:

The card came out of chat I had regarding what I view as the financial industry's basic dilemma: The best investment advice fits on an index card. A commenter asked for the actual index card. Although I was originally speaking in metaphor, I grabbed a pen and one of my daughter's note cards, scribbled this out in maybe three minutes, snapped a picture with my iPhone, and the rest was history.

More advisors and investors caught onto the idea and started writing their own financial plans on a single index card.

I love the exercise, because it makes you think about what's important and forces you to be succinct.

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Everything else is details. 

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