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Why Molina Healthcare Soared 15% Today

By Todd Campbell – Jul 28, 2016 at 1:52PM

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Solid second-quarter financials are boosting optimism about this Medicaid insurer.

Image source: Getty Images.

What: After reporting top- and bottom-line second-quarter results that were better than industry watchers were looking for, shares in Molina Healthcare (MOH 0.15%) were jumping 15% at 11:30 a.m. EDT today.

So what: Sales and profit have been growing steadily for the Medicaid insurer since the passage of Obamacare and the resulting adoption of Medicaid expansion in 31 states and the District of Columbia. In the second quarter, a 26% increase in aggregate membership led to a 24% year-over-year increase in sales to $4.4 billion. Exiting Q1, the company was guiding for second-quarter revenue of $4.27 billion. 

Leveraging that sales growth against fixed costs allowed management to deliver $0.67 per share in adjusted net income in the quarter, up 31% from a year ago and $0.18 better than analysts were predicting.

The improvement in profit stems largely from moves made by the company to improve performance in Ohio and Texas markets. The company's medical care ratio, or the ratio of revenue spent on healthcare for members, fell to 89.7% in the second quarter of 2016 from 92% in the first quarter in Ohio, and it dropped to 78.5% in the second quarter of 2016 from 92.8% in the first quarter in Texas. 

The following table offers insight into membership growth in the quarter by state.

Data source: Molina Healthcare.

Now what: The company believes it's on track to deliver on its previous adjusted net income guidance this year of between $2.59 and $2.95; the improving medical cost ratios in key markets go a long way toward hitting that target.

Since Molina Healthcare derives the lion's share of its sales and profit running state Medicaid programs, it's somewhat insulated against the insurance industry's whims and whispers. That suggests that as long as states maintain current thresholds for qualifying for Medicaid, Molina Healthcare will benefit.

Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. Like this article? Follow him on Twitter where he goes by the handle @ebcapital to see more articles like this.

The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Stocks Mentioned

Molina Healthcare Stock Quote
Molina Healthcare
$335.63 (0.15%) $0.52

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