Molina's Q1 Earnings Beat Ests, Lag Y/Y - Analyst Blog

Molina Healthcare Inc. MOH reported first-quarter 2014 operating earnings of 10 cents per share, beating the Zacks Consensus Estimate of a break-even. However, the number substantially declined from the year-ago quarter's earnings of 65 cents per share.

Including a 1 cent loss from discontinued operations, Molina reported net income of 9 cents per share in the quarter, lower than 64 cents earned earlier.

Operational Update

Total revenue in the reported quarter climbed 30% to $2.1 billion from $1.6 billion in the prior-year quarter. Revenues were in line with the Zacks Consensus Estimate. The year-over-year upside in revenues was mainly driven by higher premium and service revenues, health insurer fee revenues and investment income.

Premium revenues improved 29.6% year over year to $1.9 billion. Molina's service revenues also increased 7.8% to $53.6 million.

Further, Molina's investment income rose 7.5% year over year to $1.6 million. Premium tax revenue also increased to $51.7 million from $37.0 million in the first quarter of 2013.

Total operating expenses rose 34.3% year over year to $2.0 billion. The rise was driven by general and administrative (G&A) expenses (up from $141.3 million to $188.1 million year over year), premium tax ($51.7 million from $37 million), depreciation and amortization (D&A) costs ($20.7 million from $16.6 million), cost of service revenues ($40.7 million from $39.8 million), and medical care costs ($1.7 billion from $1.3 billion).

Operating income was $24.3 million in the reported quarter that compared unfavorably with operating income of $67.9 million in the year-earlier quarter.

Additionally, Molina's interest expenses increased to $13.8 million from $13.0 million in the year-ago quarter. Further, medical care ratio (ratio of medical care costs to premium revenue) deteriorated 170 basis points to 88.7% from 86.0% in the year-ago quarter.

Financial Update

As of Mar 31, 2014, cash and cash equivalents at Molina were $1.1 billion, up from $935.9 million at 2013-end. During the first quarter of 2014, cash from operations amounted to $210.9 million as against $20.1 million in the year-ago quarter.

As of Mar 31, 2014, total assets increased to $3.3 billion from $3 billion at 2013-end. Meanwhile, Molina's shareholder equity stood at $897.7 million as of Mar 31, 2014 compared with $892.9 million as of Dec 31, 2013.

2014 Outlook

Molina reiterated its 2014 net operating income guidance at $1.65–$2.15 per share. The Zacks Consensus Estimate of $1.97 per share remains within this range. The adjusted net income from continuing operations outlook was also unchanged at $4.00–$4.50 per share.

Our Take

Although Molina's first-quarter earnings exceeded our expectations, it was below the year-ago numbers. However, results improved from the dismal results reported last quarter.

Molina forayed into South Carolina and started serving members under the Medicaid managed care program of the state effective Jan 2014. Additionally, the company's initiatives toward enhancing its staffing and technology are commendable. These initiatives are expected to help the company capitalize on the growth opportunities provided by the dual eligible programs and Affordable Care Act.

Others

DaVita HealthCare Partners Inc. DVA reported first-quarter 2014 adjusted operating earnings of 85 cents per share that missed the Zacks Consensus Estimate of 87 cents per share.

WellPoint Inc. WLP reported first-quarter 2014 adjusted income of $2.30 per share, beating the Zacks Consensus Estimate of $2.12 per share.

Zacks Rank

Molina currently carries a Zacks Rank #3 (Hold). However, Aetna Inc. AET is a better-ranked stock worth considering in the healthcare services space with a Zacks Rank #2 (Buy).