Today’s news: Molina Healthcare (MOH) reports huge earnings beat; moves from Strong Buy to Hold. (No further news on potential Boeing/KLX merger.)
Molina Healthcare (MOH) announced first-quarter results far above Wall Street estimates this morning, and significantly raised guidance for full-year 2018. Adjusted earnings per share came in at $1.71 vs. the Thomson Reuters consensus estimate of $0.77. Revenue of $4.3 billion fell short of the $4.7 billion analysts expected.
Molina guided full-year 2018 adjusted EPS up to a range of $4.24-$4.74, when the consensus estimate had been $3.64. (Note that Reuters made an error in their report this morning, stating that the 2018 consensus estimate was $4.43. In fact, $4.43 was the 2019 earnings estimate, which will invariably be increased in the coming days as analysts rework all of their numbers for Molina.) Full-year 2018 revenue was guided downward from $18.8 billion to $18.7 billion.
During the quarter, profits were enhanced by a drop in the medical care ratio and the expense ratio, and a benefit stemming from the reconciliation of 2017 marketplace cost-sharing reduction subsidies. CEO Joe Zubretsky stated, “We met or exceeded our expectations in most areas.” Read the full press release here.
The stock is up about 6% this morning at 90. The 2018 P/E is about 20.0, based on average revised EPS of $4.49.
As I stated in early April, “Important upcoming events include Molina’s annual Investor Day on May 31 and the announcement of new contract awards by Washington State on May 22. The Washington contract reprocurements are critical to the company.”
I’m moving MOH from Strong Buy to Hold. It’s a greatly improving and growing company under new management’s restructuring program. That being said, I’m inclined to take the “sure thing” – the short-term profit – rather than wait for the Washington State contract news, which could be either good or bad.
MOH joined the Growth Portfolio in early April at an average price of 79.10. I plan to sell above 92, which is likely to happen this week. Investors who decide to hold their shares should use stop-loss orders prior to the Washington contract news, because a contract loss is going to greatly affect the share price. Hold.