Earlier in the week, Jefferies & Co. downgraded four managed-care providers that rely upon government reimbursements: Amerigroup (NYSE:AGP), Centene (NYSE:CNC), WellCare Health Plans (NYSE:WCG), and Molina Healthcare (NYSE:MOH). For contrarian investors, this downgrade presented an opportune time to pick up shares of Molina a day in advance of the company's Q1 earnings release.

The untimely downgrade was met by Molina with a 23.8% increase in premium revenue and a 9.7% increase in earnings on a per-share basis over its 2006 Q1. The company also confirmed its full-year earnings forecast as its stock price surged more than 10% between Tuesday's and Wednesday's close of the market.

Other positive takeaways from the earnings release included a 17% increase in membership enrollment and a decline in core general and administrative expenses as a percentage of revenue. Among the company's unfavorable trends was a slight increase in its medical care ratio from 85.3% in 2006's Q1 to 85.7% in 2007's Q1. This increase was expected and is attributable to Molina's start-up health plans in Ohio and Texas. The company expects the ratios in these specific regions to decrease as the plans become fully transitioned into the organization.

As for the downgrades, they were based upon the premise that a slowing economy will result in lower state tax revenue, and this in turn will decrease the amounts that state governments are willing to reimburse companies such as Molina that administer government-sponsored health plans. In theory this argument should carry some weight, however it has failed to catch up with this stock.

The company has posted consecutive quarters of 20%-plus growth in revenue and the stock is unwavering as management expects EPS to grow by between 8% and 17% for FY 2007. It will be interesting to see if the economy negatively impacts Molina's reimbursements to the point that it is a drag on the stock price. In the meantime, I am not betting against the company.     

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Fool contributor Billy Fisher does not own shares of any of the companies mentioned. The Motley Fool has a disclosure policy.