Why Molina Healthcare Shares Rocketed Higher


What: Shares of Medicaid-related health-care plan provider Molina Healthcare (NYS: MOH) popped by as much as 31% this morning after it announced that it would continue to be a Medicaid managed health-care provider in Ohio after winning a bid from state officials.

So what: Before you get too excited, understand that today's 31% rise follows yesterday's 31% tumble after Molina warned that higher costs in Texas would cause it to potentially lose money in the state, and forced it to rescind its earnings guidance. Today's news out of Ohio adds some wind back into shareholders' sails as Ohio chose to reverse its original decision and give its Medicaid managed health-care business to both Molina and Centene (NYS: CNC) at the expense of Aetna (NYS: AET) , which is a large commercial insurer in the state. The state's decision remains unchanged on UnitedHealth Group (NYS: UNH) and it will join Molina and Centene as a health-care plan provider.

Now what: Today's news is good because it will drive new business, but it could prove to be a moot point if Molina is paying out more in medical costs than it's bringing in with its premiums. Molina is a cash-rich company that has historically traded at a lower valuation than its peers mainly because of its targeting of lower-income (and thus, lower-margin) families, so it does have an attractive valuation on its side. However, until Molina solidifies its near-term picture and guidance, I wouldn't be brave enough to go near the stock.

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