KeyBanc Initiates Magellan At Sector Weight

KeyBanc analysts believe

Magellan Health IncMGLN

's dearth of experience in handling Medicaid populations will likely take away from the company's ability to win state procurement from more seasoned competitors. Thus, the bank initiated coverage on Magellan Thursday with a Sector Weight rating. No price target was set.

Adding to the analysts' concerns were declining operating margins, which they attributed to contract losses, and rising competitiveness. New businesses have produced lower profitability also.

On the bright side, those new products, combined with recent acquisitions, have helped the company's pharmacy segment to drive top-line growth. Low net debt levels and cash flow generation could result in continued buybacks and more acquisitions.

KeyBanc still takes a cautious view, however. Although intrigued by Magellan's strong capital position and the pharmacy segment growth, until the likelihood of winning Medicaid contracts seems to improve, KeyBanc will stay on the sidelines.

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