Why Shares of Molina Healthcare Inc Jumped Today

Medicaid focused health insurer Molina Healthcare popped today after reporting second quarter earnings. Were investors right to bid up the stock based on the news?

Brian Feroldi
Brian Feroldi
Jul 31, 2015 at 1:01PM
Health Care

What: Shares of Molina Healthcare (NYSE:MOH), a health insurer with a focus on government assistance programs like Medicaid, jumped more than 12% today after reporting second quarter earnings results that topped wall street expectations. 

So what: Molina posted a huge 52% growth in revenue over last years results, which came in at $3.5 billion during the quarter. Thanks to solid expense management efforts, the company was able to improve its margins, causing earnings-per-share to jump to $0.72 for the quarter, much higher than the $0.63 that analysts were expecting. Better yet, after adjusting for one-time events, earnings would have landed even higher at $0.86 during the period. The market certainly looked kindly on the news, and bid the stock higher today a result.

Now what: Its great to see that the company was able to improve margins alongside its huge growth in premiums, allowing the company to keep a higher percentage of its revenue as profit. As the Affordable Care Act, better known as Obamacare, continues to roll out across the nation Molina is in a prime position to continue to grow its membership. In addition, the company's strategy to acquire other Medicaid focused healthcare insurer's across the country is proving to be a winning plan, and bodes well for its ability to continue to scale operations.

Today's report should give investors confidence that Molina strategy is working, and I think the market's reaction to bid the stock up today was appropriate. Molina isn't exactly a cheap stock, as it's currently trading at 43 times trailing earnings, but with analysts predicting the company's profits to grow at more than 30% annually over the next 5 years, I think Molina is in a prime position to hopefully continue rewarding long-term investors with market-beating returns.