Moline Healthcare (NYSE:MOH) delivers lower guidance for the rest of 2016. The primary reason for the decline is because of the drop in Medicaid premium rates. This should not have been a surprise for many investors because of the uncertainty found in government payer businesses.
Fortunately Molina has been able to integrate its past acquisitions more successfully and enroll over 700,000 new members, increasing membership by 20%. A few concerns for the rest of the year are higher than expected medical costs and margin pressures. The Zika virus has traveled to Puerto Rico, one of the territories MOH covers and create unexpected surprises. On the other hand, the insurance company has also been epxeriencing rising pharmacy costs that cannot be passed through to customers in the near term.
Overall the company is still suprisingly cheap on a cash flow basis and has been completely oversold in the past few weeks. Molina Healthcare maintains a medical ratio under 90% and delivers a net profit, which is impressive under many standards in the insurance industry. The family owned company has been able to maintain costs while increasing revenue and holds over $2 billion in cash that is readily available for future acquisitions.
Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in MOH over the next 72 hours.
Additional disclosure: At the time of this commentary Vijar Kohli, his family and/or clients of Golden Door Asset Management held no positions in the stocks mentioned - although positions can change at any time. Vijar Kohli is the Portfolio Manager of Golden Door Asset Management, LLC, a registered investment advisor specializing in individual and high net worth individual private wealth management. For more information on investing with Golden Door Asset Management, LLC please visit our website, www.goldendoorasset.com. Golden Door Asset Management, LLC is a New Jersey LLC, with its principal office located in Manalapan, NJ. Vijar Kohli is also the publisher of CareStocks, a newsletter focusing in on healthcare services, medical equipment, technology and real estate stocks. More information to the newsletter can be found at www.carestocks.com. © 2015 Golden Door Asset Management, LLC. All rights reserved.