Molina Healthcare Decreases Full-Year Earnings Estimates by 70%, Predicts Second-Quarter Loss
Officials for Long Beach-based HMO Molina Healthcare on Wednesday announced a 70% reduction in full-year earnings estimates, in part because of increased medical costs, the Los Angeles Times reports. Molina reduced full-year earnings estimates to between 73 cents and 80 cents per share from between $2.40 and $2.45 per share. In addition, Molina officials said that the company on Aug. 8 likely will report a second-quarter loss of between 15 cents and 20 cents per share (Vrana, Los Angeles Times, 7/22).
Medical costs likely will account for between 91.3% and 91.8% of premiums and other second-quarter income, compared with 84.9% of first-quarter income, Molina officials said. (San Diego Union-Tribune, 7/22). Unexpected hospitalizations among members in New Mexico and a late flu season contributed to the increased medical costs, according to the company.
Molina officials said they will consider proposals to open clinics in New Mexico and Washington state to replace health care providers under contract with the company and renegotiate contracts with some hospitals and physicians to help reduce medical costs.
According to the Times, "Wall Street has traditionally liked" the stock of companies that provide care for Medicaid beneficiaries, but share prices for such companies decreased by as much as 16% on Thursday. The share price of Molina stock decreased by 43% on Thursday.
In a report released on Wednesday, Patrick Hojlo, a Credit Suisse analyst, wrote, "The Medicaid managed care stocks trade at a 16% premium to their commercial brethren." He added, "We question the rationale behind this premium" (Los Angeles Times, 7/22).