Why Investors Should Retain Molina Healthcare (MOH) Stock

Molina Healthcare, Inc.’s (NYSE:MOH) consistent operating performance is backed by its steady increase in premiums and service revenues, effective inorganic growth initiatives and solid fundamentals. Well reflective of the tailwinds, year to date, shares of Molina Healthcare gained 28%, outperforming the Zacks categorized Medical-Health Maintenance Organization industry’s gain of 19%.

Molina Healthcare witnessed a steady increase in premiums and service revenues over the past several quarters. More care intensive benefits and higher premiums associated with the aged, blind or disabled and Medicare members substantially contributed to the increased revenues.

Molina Healthcare has been growing via in-market or tuck-in acquisitions over last few years. This not only contributed considerably to the company’s growth in existing markets but also helped in establishing its footprint across the globe. In 2016, the company completed its acquisition of Universal American’s Total Care Medicaid plan.

In addition, Molina Healthcare’s s steadily growing operating cash flow helped it in deploying capital in the most effective manner. Continuing the trend, net cash from operating activities totaled $719 million in the first quarter of 2017, up 417% over the year-ago quarter.

However, the company’s earnings continue to be challenged by rising medical care costs. The rise stemmed from higher utilization, physician and outpatient costs. Influenza-related illnesses and costs associated with the more recently enrolled members were the key factors in higher utilization. Medical care costs have spiked dramatically at an eight-year CAGR of 23.95%.

Moreover, Molina Healthcare’s over dependence on debt financing led to a rise in interest expenses that again pose risks of draining the bottom line. High level of debt can also hurt the company’s face value.

Zacks Rank and Stocks to Consider

Molina Healthcare presently has a Zacks Rank #3 (Hold). Investors can consider some better-ranked stocks like Align Technology, Inc. (NASDAQ:ALGN) , EDAP TMS S.A. (NASDAQ:EDAP) and Inogen Inc. (NASDAQ:INGN) . All of the stocks sport a Zacks Rank #1(Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Align Technology, a medical dental supplies company, topped estimates in each of the last four quarters with an average beat of 59.23%.

Inogen is a medical instruments seller, which delivered positive surprises in each of the last four quarters with an average beat of 82.42%.

EDAP TMS also posted positive surprises in two of the last four quarters with an average beat of 366.67%.

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