Molina Healthcare To Sell MMS Unit For Business Streamlining

Molina Healthcare, Inc. (NYSE:MOH) will be selling its wholly owned subsidiary Molina Medicaid Solutions (“MMS”), a Medicaid management information systems business, to DXC Technology Company (NYSE:DXC) .

MMS provides services to state agencies in the administration of Medicaid programs including business processing, information technology development and administrative services.
The unit was acquired by Molina Healthcare in 2010 from Unisys Corporation. It represented 1% of company revenues in 2017 and also carried a service margin ratio of 8%.

The sale expected to close during the third quarter of 2018, will fetch the company approximately $220 million. Funds from this deal will be invested in growing the company’s core business — Medicaid and Medicare. The company might also use part of the funds to pay debt, which will delever its balance sheet and strengthen its capital position.

Though the sale might dilute the company’s 2018 earnings, its effect will be nullified from the increased buyback the company would make from the released funds from the sale.

The sale came as no surprise and is one of the numerous efforts that management is making to build up the company’s profitability that should help it in the long term.

Another positive news for the stock is the receipt of Medicaid contract for two regions in Florida following the protest against initial awards. Molina Healthcare currently serves around 105,000 lives, grossing nearly $550 million of annual revenues from these regions.Molina Healthcare primarily serves via Medicaid, Medicare and other government-sponsored programs. The company is well-positioned to benefit from the increased participation of managed care in Medicaid.

In a year’s time, the stock has surged 39% compared with the industry’s growth of 30%. The stock should derive a further impetus as it is showing marked changes from the recently undertaken transformation initiatives. New leadership, cost-cutting efforts, profit improvement initiatives as well as a focus on improving efficiency of core operating processes, should aid the company’s results.

Molina Healthcare’s impressive first-quarter results, beating estimates by 111.11%, and a raised 2018 guidance bear evidence of early success achieved on its transformational plans.

Moreover, the company recently disclosed in detail its progress on turnaround initiatives, reflecting its solid position for growth.

Molina Healthcare carries a Zacks Rank #3 (Hold). Investors interested in the Medical HMO industry might take a look at some better-ranked stocks like WellCare Health Plans, Inc. (NYSE:WCG) and Triple-S Management Corporation (NYSE:GTS) .

WellCare offers managed care services for government-sponsored health care programs. Sporting a Zacks Rank #1 (Strong Buy), the company delivered an average four-quarter positive surprise of 51.70%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Triple-S and its subsidiaries offer a portfolio of managed care and related products in the commercial, Medicare and Medicaid markets in Puerto Rico, the United States. It holds a Zacks Rank #2 (Buy) and came up with an average whopping four-quarter beat of 260.65%.

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