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Why Molina Healthcare, Inc. Rose as Much as 18.5% Today

By Maxx Chatsko - Aug 1, 2018 at 1:48PM

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The managed care organization reported second-quarter 2018 earnings.

What happened

Shares of Molina Healthcare (MOH 2.60%) rose over 18% today after the company reported second-quarter 2018 results. The managed care leader delivered another solid quarter of operations as it continued to slim down, improve efficiency, and reduce debt. While revenue fell 2.5% compared to the year-ago period, net income jumped to $202 million, compared to a year-ago net loss of $230 million. Total debt has declined by $493 million since the beginning of the year. 

Solid progress in the first half of 2018 prompted management to raise its full-year 2018 guidance for the second straight quarter. "Raising guidance" might be an understatement. Molina Healthcare now expects approximately $477 million in net income at the midpoint. Original guidance called for just $219 million in net income for all of 2018 -- a number nearly surpassed in the most recent quarter.

As of 12:53 p.m. EDT, the stock had settled to a 17.3% gain.

A woman checking her phone and pumping her fist as money falls around her.

Image source: Getty Images.

So what

The incredible leap observed in full-year 2018 earnings guidance is being driven by sharp improvements in membership for both the marketplace and non-marketplace (Medicaid and Medicare) businesses and decreased cost ratios for each. Consider several selected highlights from Molina Healthcare's original guidance and the most recent expectations provided: 

Metric

Original Guidance (February)

Current Guidance (July)

Total revenue

$18.8 billion

$18.8 billion

Medical care costs

$15.6 billion

$15.2 billion

Net income

$219 million (midpoint)

$477.5 million (midpoint)

EBITDA

$654 million (midpoint)

$976.5 million (midpoint)

End-of-year membership, marketplace

303,000

354,000

End-of-year membership, non-marketplace

3,738,000

3,569,000

Source: Company press release.

Considering the business brings in nearly $19 billion in revenue per year, even small changes of a few percentage points can have huge effects on the bottom line. That's what investors are seeing play out when comparing the original guidance to the latest expectations.

Now what

Molina Healthcare's strategy to revamp the business and navigate the uncertainties facing the managed care industry has proven remarkably effective so far. Judging from the more than doubling of earnings guidance for full-year 2018, even management seems to be surprised at the company's good fortune. If the company can continue to boost profits, divest noncore assets, and pay down debt, then it should be able to continue rewarding shareholders for the long haul.

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Molina Healthcare, Inc. Stock Quote
Molina Healthcare, Inc.
MOH
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